CRA Tax Tips: Capital Gains And Income Reporting Requirements For Crypto-asset Users

Crypto-assets are described by Canada Revenue Agency (CRA) as digital assets that exist on a cryptographically secured distributed ledger (or similar technology), including but not limited to cryptocurrencies such as Bitcoin, Ethereum and Tether. Disposing of a crypto-asset includes trading or exchanging the asset, using it to buy goods or services or transferring its ownership. In fall 2024, CRA released updated summary guidance on the tax reporting requirements for crypto-asset users that may have business income or capital gains from their crypto activities:

• Canada Revenue Agency, Reporting your crypto-asset income as an individual carrying on a business
• Canada Revenue Agency, Reporting your capital gains as a crypto-asset user

Whether a crypto-asset transaction gives rise to business income or a capital gain is determined on a case-by-case basis, so it is important to pay attention to what factors trigger reporting obligations in both cases as well as how to meet those obligations.

Carrying on business: Income reporting requirements

Particular income reporting obligations apply if you are resident in Canada and carrying on business anywhere in the world, or are non-resident and carrying on business in Canada. For residents of Canada, the full amount of worldwide income earned from a business, or a similar activity "in the nature of trade," is subject to tax as business income. Different taxation rules apply to assets held in the nature of "capital," as discussed further below.

Reporting obligations extend to crypto activities. You may be considered to carry on a business of dealing in crypto-assets if you buy and sell crypto with a reasonable expectation of profit and you conduct these activities with regularity or continuity. However, even an isolated crypto-asset transaction may be considered "an adventure or concern in the nature of trade," which will cause the proceeds of the transaction to be treated as business income. Such trade activity can include speculating on the market price fluctuations of crypto-assets, and purchasing and selling crypto-assets to make a profit accordingly, even if the activity is not frequent enough to form part of a true business. For help identifying whether your crypto activity may be a business or activity in the nature of trade, please reach out to a tax advisor including any member of the Dentons National Tax Group.

If crypto-assets are held as part of a business or adventure in the nature of trade, it will be necessary to value the crypto-assets as inventory using accepted valuation methods. The method chosen must be consistently followed in subsequent years. Different methods may be accepted or required depending on the type of business you have but, generally, business inventory may be valued using one of the following two methods:

• Value each inventory item at its cost when acquired or at its fair market value (FMV) at the end of the year (whichever is lower), or
• Value the entire inventory at its FMV at the end of the year.

Businesses are also permitted to accept cryptocurrency as payment for taxable property or services, including on account of sales taxes (which must still be charged and remitted). However, if a business accepts cryptocurrency as payment, additional tax considerations will apply. CRA considers the receipt of crypto-assets in exchange for property or services to be a barter transaction. Accordingly, a vendor receiving cryptocurrency must report the value received – generally, the FMV of the crypto-assets at the time of the transaction – as business income. Additionally, any tax payable to the CRA must be remitted to CRA in Canadian dollars. This means the business will need to ensure it has sufficient Canadian currency to meet its remittance obligations. Any subsequent disposition of the crypto-assets by the business would constitute a disposition which, given the continued value-growth trends of crypto-assets, may give rise to further taxable income or gains. For more information on navigating these considerations, please reach out to a tax advisor.

Reporting capital gains or losses from dispositions of crypto-assets

Where crypto-assets are not considered to be held as a form of inventory in a business or trade activity, they are held as "capital assets." Upon the disposition of a crypto-asset held and disposed of on account of capital, a capital gain will arise where the "proceeds of disposition" of the crypto-asset exceed the "adjusted cost base," outlays and expenses incurred to make the disposition. Proceeds of disposition are usually based on the sale price of the asset and, as mentioned above, in most cases CRA will accept a crypto-asset's FMV at time of trade. The adjusted cost base is usually the asset's weighted average cost. A capital loss will arise where the proceeds of disposition are less the adjusted cost base, outlays and expenses incurred to make the disposition.

If you realize capital gains, half of those capital gains are taxable capital gains that must be reported as income on your tax return. If you realize capital losses, you are allowed to deduct half of the losses as allowable capital losses against taxable capital gains. Capital losses cannot be deducted against income from any other sources (e.g. employment income).

If you have been subject to a crypto-asset scam, or other event that resulted in losses, such as the insolvency of a custodian, you may also be able to claim these losses for tax reporting purposes.

Taxation of common crypto transactions: Crypto custodial staking

Crypto staking is a common crypto activity that supports transaction validation on a blockchain network. Crypto owners can participate in crypto staking by "locking" their crypto into a blockchain network in exchange for rewards (which are generally percentage-based earnings on the value of the locked crypto). Crypto staking can be facilitated by third-party crypto-asset trading platforms (each a Platform) through "custodial staking" arrangements, where the trading platform provider holds/manages the crypto and staking procedure on behalf of the crypto owner.

In CRA interpretation 2024-1031821I7 -- Crypto custodial staking on CSA-compliant platform, CRA provided guidance on the taxability of custodial staking between Canadian resident taxpayers and centralized Platforms that are compliant with Canadian Securities Administrators regulations at various stages of the process.

First, in respect of crypto-assets held on account of capital, CRA was asked whether there is a disposition of crypto-assets by taxpayers when they deposit crypto-assets with, or stake crypto-assets through, a Platform. CRA noted that, in determining if a disposition has occurred, one must consider whether ownership of the crypto-asset was transferred/extinguished under private law, and whether any ITA-specific disposition rules apply. On this basis, a disposition will not occur where the taxpayer retains (and the Platform does not acquire) beneficial ownership of the deposited or staked crypto-assets at all relevant times.

Second, CRA was asked about the categorization, for tax purposes, of staking rewards earned by taxpayers (User Rewards) through a trading platform. CRA advised that User Rewards earned through custodial staking are generally income under section 9 of the Income Tax Act (Canada) (ITA). Regarding whether the User Rewards are income from a business or income from property, CRA affirmed that a taxpayer's "level of activity" will generally be relevant in distinguishing between business and property income and the taxpayer's whole course of conduct, viewed in light of the surrounding circumstances, must be examined.

Finally, CRA was asked when User Rewards are to be included in the income of taxpayers. CRA indicated that taxpayers can choose a method of determining their profit for a taxation year, provided the method is not inconsistent with the ITA, rules of law, and well-accepted business principles. Accordingly, User Rewards may be included in a taxpayer's income for the taxation year in which the User Rewards are credited to the taxpayer's account on the Platform, or on an accrual basis as the User Rewards are earned, depending on the accounting method employed.

Case Example: CRA's View on Treatment of Settlement Payments and Crypto Dispositions Following Platform Insolvency

In CRA interpretation 2023-0996541I7, Capital gain or loss in Mt. Gox insolvency, CRA considered the timing and treatment of a taxpayer's proceeds of settlement from their claim against a bitcoin exchange platform that had existed under the laws of Japan called Mt. Gox. Mt. Gox halted all activity on its exchange due to suspicious activity in February 2014. It was later discovered that around 650,000 bitcoins on the platform were permanently lost. Mt. Gox platform users were found to be unsecured creditors of platform operator "M Ltd." under Japanese law, and M Ltd. underwent a lengthy insolvency process. Following the insolvency process, a rehabilitation plan was finalized where former users with assets on the platform at the time of insolvency could elect to receive either an "Early Lump-Sum Repayment" or a "Final Repayment." The M Ltd. estate trustee has discretion, in respect of certain creditors, to determine the proportion of repayments that will be funded by fiat currency or crypto-assets, including Bitcoin Cash (a form of crypto-asset).

The taxpayer concerned in the CRA interpretation was a former Mt. Gox platform user (the Taxpayer) that elected to receive the Early Lump-Sum Repayment in respect of their bitcoin claims. The Taxpayer asked CRA the following questions:

1. Did the Taxpayer realize a capital gain or loss as a result of the insolvency of the Mt. Gox platform? If yes, when was the capital gain or capital loss realized?
2. Are payments received or receivable by the Taxpayer from the estate of Mt. Gox in relation to Bitcoin Cash taxable under section 9 of the Act?

In response to the first question, CRA generally found that taxpayers with claims in the insolvency should realize capital gains or losses, as applicable, upon the disposition of their claims. Notably, CRA considered the property being disposed of in the circumstances to be the contractual claim for bitcoin that the platform users held, and not proprietary ownership rights in the bitcoin held through the platform. Specifically, based on the information provided, CRA did not consider the platform users to have beneficial ownership in such bitcoin. For that reason, M Ltd.'s loss of actual bitcoin would not have triggered a disposition of the former users' claims. In the Taxpayer's case, the disposition of the Taxpayer's claim will occur at the time of receipt of the Early Lump-Sum Repayment. CRA emphasized that the treatment of proceeds from similar proceedings must be considered on a case-by-case basis, and the nature of rights held with respect to crypto-assets will be relevant in establishing whether/when a loss occurs for tax purposes.

In response to the second question, CRA reiterated that the receipt of cash or crypto-assets on payout of the rehabilitation plan, including a payout of the Early Lump-Sum Repayment in the form of Bitcoin Cash, would constitute a disposition of the former platform user's claims against M Ltd. Accordingly, payments received from the M Ltd. estate in the form of Bitcoin Cash should be included in the proceeds of such disposition.

Record-keeping requirements

You must maintain adequate books and records to support each crypto-asset transaction you perform for tax reporting purposes. To ensure accurate record-keeping of your crypto-asset activities, you should keep records of the following information whenever you purchase, dispose of, swap, mine or otherwise deal with crypto-assets:

• the number of units and type of crypto-asset for each transaction;
• the date and time of each transaction;
• the value of the crypto-asset (in Canadian dollars) at the time of each transaction;
• a description of the nature of each transaction and the other party to the transaction (even if it is just their crypto-asset address);
• the addresses associated with each digital wallet used; and
• the beginning wallet balance (and its cost) and ending wallet balance for each crypto-asset for each year.

CRA recommends that you maintain and download your user data at regular intervals whenever you use third-party software or exchanges for your crypto-asset transactions. More details on the CRA's interpretation and guidance on crypto-asset reporting may be found at CRA's Virtual Currency webpage, Information for crypto-asset users and tax professionals.

For more information on crypto-asset activities reporting, or if you believe you may have been scammed in your crypto activities, you should reach out to a tax professional who can advise on your rights and obligations in respect of crypto-asset investments. For more information on this topic, please reach out to the authors of this insight.

Proposed reporting requirements

In August 2025, the Canadian government released draft legislative proposals to update the Common Reporting Standard (CRS) and introduce the Organisation for Economic Co-operation and Development's Crypto Asset Reporting Framework. Recently, the 2025 Federal Budget confirmed the proposals would be implemented, deferring them however, to January 1, 2027. These rules will change the reporting requirements for financial institutions, including as they pertain to crypto transactions under CRS and introduce proposed Part XXI of the ITA.

Generally, financial institutions should be aware of these rules and understand how to comply with them, but all taxpayers that transact using crypto should be aware that underlying institutions will be reporting all such transactions to the CRA.

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