Canada: CRA Audits Cryptocurrency

Last Updated: April 10 2019

Back in the summer of 2018, the Canada Revenue Agency ("CRA") promised to expose those who evade tax by using cryptocurrencies such as Bitcoin, Litecoin, Ethereum, Dash, Zcash, and Ripple. At that time, the CRA boasted advances in international cooperation aimed at fighting international tax crime and money laundering.

The Canada Revenue Agency has now sent out its first round of audit letters. And Canadian cryptocurrency investors and traders are feeling the heat as the CRA makes good on that year-old promise to conduct tax audits of cryptocurrency traders.

After reviewing the expanded resources allowing the CRA to more readily identify cryptocurrency users, this article discusses the tax-audit questionnaire that various Canadians have received about their cryptocurrency activities. We then review some of the tax implications of which Canadian cryptocurrency users ought to be aware. This article concludes by providing tax tips that Canadian cryptocurrency users may find helpful.

Canada Revenue Agency's Augmented Ability to Identify Cryptocurrency Traders & Investors: The Joint Chiefs of Global Tax Enforcement (J5)

On July 3, 2018, the CRA joined the Joint Chiefs of Global Tax Enforcement (J5), a joint international effort aimed at investigating cryptocurrency-related tax evasion and money laundering, which may involve users of Bitcoin, Dodgecoin, Litecoin, Monero, Ethereum, Namecoin, Bytecoin, or Ripple.

In addition to the Canada Revenue Agency, the J5 includes tax administrators from Australia, the Netherlands, the United Kingdom, and the United States of America. The J5's mandate includes information sharing and joint investigations to combat the threat of cryptocurrencies on tax administration in the member countries. In particular, the project seeks to uncover taxpayers' unreported income and assets from holdings in Nxt, Monero, Ether, Peercoin, Swiftcoin, Tether, and other cryptocurrencies.

The group's formation has unsurprisingly caused a stir among cryptocurrency users in Canada, Australia, the Netherlands, the United Kingdom, and the United States of America. In particular, the J5's creation was an advanced signal of what we are now seeing: increased efforts by tax authorities to gain insight on cryptocurrency transactions. For example, efforts like those of the United States Internal Revenue Service (IRS), who, in early 2018, successfully compelled the digital-wallet provider, Coinbase, to surrender the account information of over 14,000 users who dealt in Bitcoin. Indeed, efforts such as these very likely explain the Canada Revenue Agency's ability to target Canadian residents for cryptocurrency-related tax audits.

The CRA's In-Depth Cryptocurrency Initial Interview Questionnaire

The CRA typically begins its tax audit process by issuing a letter notifying the taxpayer about the pending audit, the tax years or reporting periods under audit, and the general subject matter of the audit. These letters often include an initial questionnaire.

The Canadian taxpayers, whom the CRA selected for a cryptocurrency audit, received a 13-page questionnaire entitled "In-depth Cryptocurrency Initial Interview Questionnaire." It includes 54 questions, some of which are multi-part questions.

The questionnaire asks taxpayers to discuss topics such as:

  • The timeline of their cryptocurrency dealings;
  • The source of the cryptocurrencies purchased;
  • The use of third-party exchange wallets;
  • The source of funds used to purchase cryptocurrency;
  • Transaction record-keeping practices of the taxpayer;
  • Participation in initial coin offerings (ICOs);
  • Whether any cryptocurrency holdings generate passive income for the taxpayer (e.g., Node, Masternodes, Supernodes, etc.);
  • Participation in cryptocurrency mining (including questions about the sort of mining hardware used and energy expenses related to mining);
  • Acceptance of cryptocurrency as payment for goods or services;
  • The frequency of cryptocurrency transactions; and
  • The time spent studying cryptocurrency markets.

As you'll notice from the discussion below, these questions tie into various considerations that prove relevant for discerning not only whether the taxpayer reported the income but also whether the taxpayer reported the income correctly.

Canadian Tax Consequences of Cryptocurrency Transactions: An Overview

The development of the J5 and the recent audits pursued by the Canada Revenue Agency should alert users of Ethereum Classic, Titcoin, Decred, Petro, NEM, MazaCoin, and other cryptocurrencies about the need to educate themselves on the tax-compliance requirements in their jurisdiction. Some cryptocurrency users, for instance, erroneously believe that they need not worry about tax liability until they cash out into fiat (conventional currency). This is false. Discuss the Canadian tax implications of your cryptocurrency transactions with one of our expert Canadian tax lawyers.

This section provides a basic overview of some of the Canadian tax implications of which those who trade cryptocurrency should be aware.

To date, the Canada Revenue Agency treats Bitcoin—and cryptocurrencies generally—as a commodity for income-tax purposes. As a result, the CRA will subject cryptocurrency transactions in Canada to the same rules that it would apply to barter transactions.

This generally means that a gain or loss from a cryptocurrency transaction will be treated as either (i) income or loss from a business or (ii) a capital gain or loss. The difference comes with important tax implications. The full amount of business income is taxable, while only one-half of a capital gain is taxable. The corollary is that, while only one-half of capital losses are deductible, one may fully deduct business losses.

Yet it's not always entirely clear which treatment should apply. Some cryptocurrency transactions—such as trading, investing, and speculating—may straddle the line between income and capital. Unsurprisingly, Canadian courts have amassed a large body of case law labouring over the ambiguity between investing, which produces a capital gain or loss, and trading, which results in business income or expenses.

To assess whether the proceeds from a cryptocurrency transaction are business profits or capital gains, a court will ultimately examine a wide range of factors—including, the frequency of transactions, the duration of ownership, the taxpayer's knowledge of the cryptocurrency market, the relationship of the cryptocurrency transaction to the taxpayer's usual work or business, the time the taxpayer spends on cryptocurrency activities, and whether the taxpayer obtained financing to participate in the cryptocurrency transaction.

The same considerations apply when a taxpayer mines Bitcoin or other cryptocurrencies. A person who mines cryptocurrencies may be thought of as either acquiring a capital property or earning business income. If thought of as acquiring a capital property, the miner's adjusted cost base would be the cryptocurrency's fair market value at the time of acquisition. Also, since crypto-mining demands considerable computing resources, a bitcoin's adjusted cost base would presumably include the cost of generating the computer power necessary to acquire the coin. The miner thus incurs a capital gain or loss depending on the cryptocurrency's value upon disposition. On the other hand, if thought of as earning business income, the miner's income is the cryptocurrency's fair market value at the time that the miner uncovered the unit. If the miner later sells the uncovered cryptocurrency for an amount greater than its value, the excess is also included in business income. Also, because crypto-mining requires you to devote extensive computing resources to the endeavour, these costs presumably should constitute a deductible business expense.

Tax Tips: Unreported Cryptocurrency Income & Legal Opinion on Proper Tax-Return Filing Position

The Canada Revenue Agency's cryptocurrency audits signal the end of the past anonymity offered through the use of Bitcoin, Auroracoin, Dash, Synereo AMP, PotCoin, Nxt, Gridcoin, Feathercoin, and other cryptocurrencies. This should definitely concern Canadian taxpayers with unreported profit from cryptocurrency transactions. A confidential and privileged consultation with one of our expert Canadian tax lawyers can assist you in completing the tax audit questionnaire and provide you with advice on remedying past non-compliance a voluntary disclosure program (VDP) application for relief of tax penalties and avoidance of criminal tax prosecution.

Our Canadian tax lawyers can also advise you on the proper reporting of your cryptocurrency profits to ensure that CRA doesn't fault you for misrepresenting the information in your tax returns. You may, for example, benefit from a tax memorandum examining whether your cryptocurrency profits should be reported as capital gains or business income.

The information is thought to be current to date of posting. Income tax law changes frequently and content may no longer reflect the current state of the law. This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Contact the Author?
Click here to email the Author
In Association with
In Partnership with
Other Canada Advice Centres
Competition and Antitrust
Labour and Employment
Intellectual Property
More Advice Centers
Useful Resources
Forms available to download for income tax filing in Canada.
Hear David J. Rotfleisch discuss timely and highly topical tax matters during appearances and interviews with specialist publications.
Useful explanatory videos of income tax matters.
The following questions and answers are based on the proposed measures that were announced on December 7, 2015.
The official Government website of the CRA.
This guide is for any person who deals with the Canada Revenue Agency (CRA). The guide gives you information on the 16 rights set out in the Taxpayer Bill of Rights and explains what you can do if you believe that the CRA has not respected your rights.
The Office of the Taxpayers' Ombudsman (OTO) works to enhance the Canada Revenue Agency's (CRA) accountability in its service to, and treatment of, taxpayers and benefit recipients through independent and impartial reviews of service-related complaints and systemic issues.
Ontario personal income tax is an annual tax collected from individuals who are Ontario residents on the last day of the tax year or have income earned in Ontario for the tax year.
The following documents provide instructions for filing your 2015 income tax return.
If you earned income in B.C. or operated a Corporation with a permanent establishment in B.C. last year you need to file an income tax return. Find out when you need to file your income tax return, and if any tax credits or rebates apply to you.
Generally, a corporation must file an Alberta corporate income tax return (AT1) for each taxation year during which it has a permanent establishment in Alberta.
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions