Canada Crypto Taxes 101

While Canada has yet to see the same adoption rates for crypto as the United States, the Canadian government and regulatory authorities are taking steps to provide guidance and regulation for the emerging sector.  

Below is an overview of the crypto tax landscape in Canada. This is not legal or tax advice. Please consult with a tax professional or refer to the CRA’s guidelines for cryptocurrencies to ensure compliance with current regulations and understand your situation’s specific reporting requirements.

Cryptocurrency in Canada

In October 2022, the Ontario Securities Commission (OSC) released the results of an investor survey. Overall, findings showed that while a growing awareness of cryptocurrency, crypto literacy (and interest) are far from mainstream.

According to the survey, 13% of Canadians owned crypto assets. The average “crypto asset knowledge” score was 37%. Interest in crypto was tepid. Almost half of respondents did not plan to buy crypto in the next year, while 31% were considering buying within that time frame.

Canadian Crypto buyers’ reasons for purchasing mirror those of crypto investors in other countries with relatively low poverty rates and mature financial systems. They include:

• Possibility of greater returns compared to a traditional savings account

• Believe in the value of technology innovation

• Potential upside from speculative investment

• Portfolio diversification

At the time of the survey, crypto investors in Canada were 67% male, mostly between the ages of 24-44. Half had undergraduate degrees or higher, and 37% made $100K or more annually. Not surprisingly, they were more likely to be investors in Tradfi investment funds, stocks, and other securities.

Current POV – Cryptocurrency Adoption and Regulation in Canada

The spring of 2023 was rough for crypto exchanges and investors in Canada. Binance, OKX, and Paxos announced they were ceasing operations in Canada in response to new cryptocurrency-related regulations enacted by the Canadian Securities Administrators (CSA).

On February 22, 2023, the CSA released a notice requiring crypto trading firms to register with their “principal regulator” within 30 days. The new rules for firms included:

• Crypto exchanges must implement enhanced protections for Canadian clients’ custody and segregation of crypto assets.

• They are prohibited from offering margin, credit, or other forms of leverage.

• Platforms can only allow the purchase or deposit of stablecoins with prior written consent from the CSA.

• If a crypto trading platform is “unable or unwilling” to comply, the CSA will “offboard” its Canadian users and impose restrictions to prevent Canadian users from accessing its products or services.

Cryptocurrency Regulatory Oversight in Canada

In Canada, cryptocurrency regulations involve multiple federal and provincial agencies. Below are some of the key regulatory bodies involved in overseeing cryptocurrency-related activities:

1. Canadian Securities Administrators (CSA): The CSA is an umbrella organization comprising provincial and territorial securities regulators across Canada. It regulates securities markets and activities, including initial coin offerings (ICOs), security token offerings (STOs), and cryptocurrency exchanges that qualify as securities. Each province and territory has securities regulators, such as the Ontario Securities Commission (OSC) and the British Columbia Securities Commission (BCSC).
2. Canada Revenue Agency (CRA): The CRA is responsible for administering and enforcing tax laws in Canada. It has provided guidance on the tax treatment of cryptocurrencies, including guidelines on reporting cryptocurrency transactions and obligations for cryptocurrency businesses.
3. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC): FINTRAC is Canada’s financial intelligence unit responsible for implementing and enforcing anti-money laundering (AML) and counter-terrorism financing (CTF) regulations. It requires cryptocurrency exchanges and other businesses dealing with virtual currencies to register as money services businesses (MSBs) and comply with AML/CTF regulations.
4. Office of the Superintendent of Financial Institutions (OSFI): OSFI regulates and supervises federally chartered banks and other financial institutions in Canada. While it doesn’t directly regulate cryptocurrencies, it guides banks and financial institutions on managing risks associated with virtual currencies.
5. Investment Industry Regulatory Organization of Canada (IIROC): The IIROC is a self-regulatory organization overseeing investment dealers and trading activity in Canada’s capital markets. It sets rules and standards for dealer members engaging in cryptocurrency trading and related activities.
6. Provincial Financial Services Regulators: Each province and territory in Canada has its own financial services regulator responsible for overseeing financial activities within its jurisdiction. These regulators may have specific guidelines or requirements for cryptocurrency-related businesses and activities. Examples include the Autorité des marchés financiers (AMF) in Quebec and the Alberta Securities Commission (ASC)

Investors should note that the regulatory landscape for crypto is continuously evolving. It’s important to consult legal and financial professionals and check directly with relevant regulatory bodies for the most up-to-date information.

Taxable Events for Cryptocurrency in Canada

Canada taxes cryptocurrency as property. Canadian taxpayers are not obligated to pay taxes for buying or holding cryptocurrency.

Citizens are subject to capital gains or business income taxes on crypto sales, mining, or other crypto-related proceeds. The distinction between capital gains and business income is important because 50% of capital gains and 100% of business income are taxable.

Crypto is not considered legal tender in Canada, which means that when you use it to pay for goods or services, it’s regarded as a barter transaction with corresponding tax consequences. When Canadian taxpayers receive goods or services in exchange for crypto, they will have a capital gain or loss on the spent crypto’s change in value since they acquired it.

Here are some scenarios that may be considered taxable events:

1. Selling or exchanging cryptocurrency: If you sell or exchange your cryptocurrency for fiat currency or another cryptocurrency, any gains or losses you realize from the transaction are subject to taxation. The CRA treats these transactions similarly to selling any other type of property.
2. Using cryptocurrency to purchase goods or services: Using cryptocurrency to pay for goods or services is considered a disposition for tax purposes. The value of the cryptocurrency at the time of the transaction is used to determine the proceeds and any taxable gain or loss.
3. Receiving cryptocurrency as payment for goods or services: If you accept cryptocurrency as payment for goods or services you provide, the value of the cryptocurrency at the time of receipt is considered income, and you are required to report it accordingly.
4. Mining or staking cryptocurrency: If you mine or stake cryptocurrencies as part of your activities, the value of the cryptocurrency you receive is considered income. You must report this income based on the cryptocurrency’s fair market value at the time of receipt.

In summary, a cryptocurrency taxable event in Canada occurs when you dispose of or sell your cryptocurrency holdings. As noted above, the Canada Revenue Agency (CRA) treats cryptocurrencies as commodities for tax purposes rather than as currencies. Gains from the sale of cryptocurrencies are taxable capital gains, and losses can be used to offset capital gains for tax purposes.

Crypto Tax Planning Strategies in Canada

Tax planning strategies for crypto investors can help Canadian investors optimize their tax positions and minimize liabilities. Below are some commonly used techniques. Be sure to check with a financial advisor about your situation.

1. Use registered accounts to reduce tax liabilities.
2. Keep thorough records of all your cryptocurrency transactions, including dates, amounts, and values. Accurate record-keeping will help calculate capital gains or losses accurately and provide evidence to support your tax reporting.
3. Capital gains/losses optimization: Consider the strategic timing of your cryptocurrency sales to manage the timing and amount of capital gains. For example, if you expect lower income in a particular tax year, you may want to realize capital gains to take advantage of lower tax rates.
4. Capital gains exemption (for qualified small business corporation shares): If you hold qualified small business corporation shares and meet certain conditions in Canada, you may be eligible for the lifetime capital gains exemption. Check with a financial advisor for more info.
5. Capital losses utilization: Capital losses from the sale of cryptocurrencies can be used to offset capital gains. If you have capital losses from other investments, you can apply them against your cryptocurrency capital gains to reduce your overall tax liability.
6. Tax-efficient donation:  In Canada, when you donate appreciated cryptocurrencies, you can eliminate the capital gains tax liability on the donated amount. You may also be eligible for a charitable tax deduction based on the cryptocurrencies’ fair market value at the time of the donation.
7. Report foreign cryptocurrency holdings: Canada has rules for reporting foreign assets and income, including foreign cryptocurrency holdings, if you hold cryptocurrencies in foreign exchanges or wallets. Failure to report these assets accurately can result in penalties and additional tax liabilities.

Remember, tax planning should be done in consultation with a qualified tax professional who can provide personalized advice based on your circumstances.

Forms for Filing Crypto on Canadian Taxes

Canadian taxpayers file their capital gains from crypto with a Schedule 3 – Capital Gains form. Business crypto transactions should be reported with Form T2125 because they are subject to income tax, not capital gains tax.

Canadian residents who hold crypto outside Canada must file Form T1135 with CRA if their specified foreign property (including cryptocurrency) costs more than $100,000.

Canadian Tax Penalties For Not Reporting Cryptocurrency

Failure to report cryptocurrency transactions on your taxes in Canada can result in penalties and potential legal consequences, depending on the circumstances and the severity of the non-compliance. Here are some potential penalties that may apply:

1. Failure to report income: If you fail to report cryptocurrency income from activities such as trading, mining, or staking, the Canada Revenue Agency (CRA) may assess penalties and interest on the unreported income.
2. Late filing penalties: The CRA can impose penalties if you fail to file your tax return by the deadline without a valid reason.
3. Inaccurate or false reporting penalties: Significant penalties can be applied if the CRA determines that you intentionally provided incorrect or fraudulent information on your tax return.
4. Interest charges: Besides penalties, the CRA may charge interest on any outstanding tax amounts, including unreported cryptocurrency income or underpaid taxes. The interest is typically calculated daily and compounded annually.
5. Criminal charges and prosecution: In severe cases of intentional tax evasion or fraud, the CRA may pursue criminal charges, resulting in legal consequences. This can lead to fines, imprisonment, or both.

It’s important to note that the CRA has been actively targeting cryptocurrency tax evasion and non-compliance. They are working with international counterparts and utilizing advanced data-matching techniques to identify individuals needing to report cryptocurrency transactions correctly.

Moving Ahead

The early promise of cryptocurrency as a borderless, peer-to-peer way of exchanging value is long gone. For better or worse, a Tradfi regulatory wave is washing over the global expansion of cryptocurrency.

Are you a Canadian resident who owns cryptocurrency? Record keeping is more important than ever to navigate the current upheaval. In February 2023, Zenledger announced international service expansion. Our support features include the following:

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If you are a Canadian crypto investor and need some help with your tax filing, we can help you. Reach out today.

This material has been prepared for informational purposes only and should not be interpreted as professional advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.

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