How does selling NFTs affect my taxes?

The CRA requires you to determine the gain or loss for tax purposes on the difference between the cost of a capital asset and what it's ultimately sold for. You have a capital asset when your intention and the facts of the situation point toward a buy, hold, and then sell situation. Say for example, you purchased an NFT for the equivalent of $300 in the hope it'll increase in value, and sold it later for the equivalent of $500. The capital gain on the $200 difference would result in a taxable capital gain of $100 being subject to tax, under the current tax rules. This method of reporting NFT amounts should be used for casual collectors, and isn't allowed for trading businesses or those minting NFTs with the intention of selling for profit.

To report these amounts in TurboTax, use the following instructions. If you require more lines than are provided, refer to the following article.

If you are minting, creating, or acquiring NFTs with the sole purpose of selling for  a profit as a business, this should be reported for income tax as business income. For example, if you’ve created/minted multiple NFTs and sold them for $3,000 in profit, and the effort required to do that amounts to a business activity, that amount would get added to your reported business income and taxed accordingly. This method of reporting NFT amounts is intended for those creating/minting NFTs in a systematically organized and profit-oriented manner.

These amounts would then be entered into TurboTax under self-employed (business) income. Refer to the CRA website for additional information.

If you are creating or minting NFTs with the purpose of creating an income stream from royalty rights embedded in your smart contracts, the monetary equivalent of the royalties should be entered into TurboTax as investment income. For example, if you’ve created/minted and sold multiple NFTs with royalty rights retained by you, you’ll receive a royalty upon the subsequent re-sale of each NFT in the resale market. You enter those royalty amounts as investment income and are taxed accordingly. The original sale of the NFT is reported in one of the two ways described in the preceding two sections.