Hello, I have a question about how to proceed with my taxes for 2023. I currently run a specialized computer system for a crypto project, they pay me in their native cryptocurrency for completing work on this computer, it is automated and I just manage uptime, maintenance, etc. I paid for all the hardware, I pay the utilities and it takes up space at my home and requires some of my time as well. Basically, I am trying to understand how this is taxed, as it isn’t really “mining” like for BTC for example. The income in crypto it generates exceeds what I’d imagine the CRA would classify as a hobby. As of right now, Koinly is just tracking it as income, and giving it a cost of acquisition + cap gains whenever I sell some. I mostly hold and generally only sell to upgrade equipment etc. It’s kind of like I run a data center, but I’m paid in crypto instead of fiat. its totally decentralized, I am not an employee of this project. I’m trying to figure out what is best to do here, I would love to be able to claim capital costs of equipment, space, utilities etc. I just don’t understand how they tax income on an asset you have not sold yet if its classified as business income.
Given your mention of the CRA, I have assumed that you are taxed in Canada as a Canadian resident.
Based on the description you have provided, I would be inclined to think that you are carrying on a small business as a sole proprietor and should be reporting your net income from this activity on a Form T2125 Statement of Business Activities that is filed with your T1 tax return.
From the Koinly perspective, you would need to tag the cryptocurrency you receive as Income based on the fair value of the crypto on the date of receipt. This would be your Revenue from the business.
You would be able to deduct your fiat payments for utilities and other office expenses as well as the use of space in your home, etc. as Operating Expenses. You would record the Computer cost as a capital expense and claim CCA at the appropriate rate.
The cryptocurrency that you receive as Income will be assigned a cost base by Koinly and you will have to report capital gains or losses on Schedule 3 of your T1 tax return if you dispose of this crypto for fiat or other crypto.
As @Aria_Koinly has stated, it may be advisable to get help from a tax accountant if the amount of Income you are generating is significant enough to warrant the expense.