How to Hold Bitcoin In Your TFSA and RRSP

Holding Bitcoin In Your TFSA and RRSPBitcoin and other cryptocurrencies are proving to be great investments in recent times. Investors all around the globe are therefore trying their best to find different avenues to get involved. Some buy bitcoin directly on exchanges while some prefer peer-to-peer networks. Some use bitcoin ATMs while many others use over the counter services.

No matter what avenue people choose, the main focus is to benefit from the potentially huge returns that bitcoin has been providing for over a decade. However, great returns also come with great tax implications. And the Canada Revenue Agency (CRA) has made it clear that bitcoin and other cryptocurrencies are subject to capital gains tax.

This means if you make a lot of gains, a good chunk of that will have to be paid as taxes. To reduce their tax liability and to do away with having to keep detailed records of every single crypto transaction to calculate taxes, many people try to seek whether they can hold their bitcoin in their TFSA (Tax-free savings account) or RRSP (Registered Retirement Savings Plan).

 

Tax free saving account
Tax free saving account (TFSA)

What Is TFSA?

Basically, TFSA is a registered investment account that allows for tax-free gains. However, the amount of money that can be contributed to your TFSA is limited to a certain amount every year. The Canadian government introduced TFSA in 2009 to encourage people to save money.

 

                                                             What Is RRSP?

registered retirement savings plan (RRSP)
registered retirement savings plan (RRSP)

RRSP is basically a retirement account that has been in existence since 1957. As the name suggests, the Canadian government introduced it to help people save money for their retirement. It also provides an additional benefit of deferring taxes so that your current year’s tax bills can be brought down.

 

 

 

Can You Hold Bitcoin In Your TFSA & RRSP?

If you are trying to make a profit in bitcoin or investing in bitcoin and other cryptos, you would naturally want to learn whether holding bitcoin in your TFSA and RRSP is an option. Since they provide great tax incentives, it would be such a beneficial proposition for investors to buy bitcoin in this way, if it was allowed.

However, currently, digital currencies cannot be held directly in their TFSA and RRSP. In fact, there are no eligible bitcoin ETFs in all of North America yet.

The way things stand presently, you can only hold funds that are focused on blockchain technology. Harvest Portfolio’s Blockchain Technologies ETF (TSX: HBLK) and Horizon’s Blockchain Technology & Hardware Index ETF (TSX: BKCH) are two of the more prominent examples.

This limitation of not being able to hold digital currencies in the registered accounts discourages many people to get involved in the crypto space in the first place. They usually fear the huge tax implications and the need to keep a detailed record of every single cryptocurrency transaction.

A Way Around?

There is a way around this limitation and before you ask it, it is completely legal to get involved in this way. In fact, many users online have claimed to benefit from this route.

The thing is that, although no ETF is eligible in North America yet, the ETN COINXBT which trades on the Stockholm Stock Exchange in Sweden (Nasdaq Stockholm) is eligible.

What Is COINXBT?

COINXBT is an Exchange Traded Note (ETN) that is designed to mirror the return of the underlying asset which in this case is bitcoin. This particular ETN is denominated in Swedish Kronor. This ETN holds bitcoin directly and its price per share is based on a 0.005 multiple of the current bitcoin price.

So, to understand this we can take an example. If the current price of bitcoin is $10,000, then one share of COINXBT will be worth $50 USD (or CAD 66 or $490 Swedish Kroner).

So, the next question naturally is “How do Canadians get involved in a foreign ETN”? The answer is quite simple.

Saving Bitcoin
Saving Bitcoin

How Can Canadians Trade COINXBT?

In Canada, there are a handful of brokerages that allow you to trade on eligible international exchanges in your TFSA. However, an important point to remember is that you cannot place trades on these international exchanges yourself and these must be made over the phone and with the assistance of a broker. Also, the trade happens at a much higher cost than typical North American securities.

The following is a list of many such Canadian brokers that you can use to hold COINXBT in your TFSA and their transaction fees:

  • National Bank: $75 per trade + $0.06 per share.
  • TD: Fee dependent on the amount traded. For amounts up to $5K, the fee is $187. For $80K it would be $520 per trade.
  • CIBC: $250 minimum, based on trade amount. For $50K the fees would be about $350 to buy and $350 to sell.
  • Scotia iTrade: $250 CAD per trade. It also allows for unlimited shares & order size.
  • BMO Investorline: The fee is based on the total trade amount. For $50K it would be $325 to buy and $225 to sell.

Trading COINXBT may be a hassle as it requires brokers as middlemen and the trades are not straightforward. However, until there is an eligible ETF in North America, it is the only option as of now. Once the Canadian ETF launches, you could sell your COINXBT shares and switch to that ETF.

Holding Bitcoin
Holding Bitcoin

Just Holding Bitcoin?

Many people will feel that it is a lot easier to just hold bitcoin yourself and pay whatever taxes you owe when you sell them. It certainly is the simpler option when compared to getting involved in a particular foreign security. However, it all depends on the individual and their needs.

If they want to take advantage of their registered accounts such as TFSA and RRSP, then they can certainly go this route. However, if they believe that they want to get involved in the true spirit of cryptocurrencies and own their own funds by storing them in a hard wallet, that might be the better option. At the end of the day, it depends from one case to another.

 

 

Holding Bitcoin In Your TFSA and RRSP

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