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Canadian Crypto Asset Regulation: Current Landscape for Investors
Although Bitcoin, the first cryptocurrency, was created in 2008, Canada's approach to regulating cryptocurrencies and trading platforms (also called crypto exchanges) remains relatively new. Until December 2023, these platforms operated within a regulatory sandbox overseen by the Canadian Securities Administrators (CSA), a collective of provincial and territorial securities regulators tasked with improving coordination and developing consistent policies.
Since December 2023, crypto platforms have transitioned out of the sandbox but are still required to register with CSA members, meaning the provincial or territorial securities regulators. Registered platforms must also follow conditions designed to safeguard investors, such as holding customer-deposited crypto assets in trust and keeping them separate from the platform's own assets.
For cryptocurrency tax purposes, on January 17, 2025, the Canada Revenue Agency (CRA), through its Income Tax Rulings Directorate, released interpretation document no.2024-1031821I7. This document addresses several questions on how crypto assets deposited and staked on registered crypto platforms should be taxed.
Understanding Crypto Staking: Key Tax Considerations
Before addressing the questions, it helps to understand the basics of crypto staking. Staking involves validating transactions for a cryptocurrency and recording them on a proof-of-stake blockchain protocol.
Each validator—selected at random—operates a node that confirms transactions. To take part, validators must "lock up" a required amount of crypto as collateral. If a validator acts against the rules of the blockchain protocol or community, part or all of their staked assets may be forfeited (a process called "slashing"). Staked assets can also be restricted by "lock-up" periods before and after staking—called "bonding" and "unbonding"—during which the assets are unusable and earn no rewards.
Proof-of-work, better known as "mining," is another method of verifying blockchain transactions. Miners compete to solve complex mathematical problems, with the first to succeed earning rewards. Mining requires continuous use of high-powered computers, which has drawn criticism for its heavy energy use and environmental footprint. While both methods have trade-offs, proof-of-stake has become the preferred approach for many newer cryptocurrencies.
CRA View: Depositing or Staking Crypto Assets Does Not Trigger a Disposition
When taxpayers deposit or stake crypto assets with registered platforms, they maintain beneficial ownership of those assets. The platforms themselves do not acquire beneficial ownership. As a result, no disposition occurs when the assets are deposited or staked.
CRA Tax Treatment of Staking Rewards on Registered Platforms
The CRA, with little explanation, takes the position that staking rewards are generally taxable as income under section 9 of the Income Tax Act, reasoning that staking is unlikely to be a purely personal activity without a commercial element.
However, making such a determination in broad terms, without a proper legal analysis, seems premature—particularly given the body of case law addressing whether an activity is personal or commercial. Key decisions such as Stewart v. R., 2002 SCC 46, and Moldowan v. The Queen, [1978] 1 SCR 480, have established frameworks and tests on this issue. Importantly, the presence of a profit motive alone does not necessarily remove an activity from being personal in nature.
Business Income vs. Property Income: Classification of Staking Rewards
The CRA acknowledges that staking rewards cannot be classified in advance as either business income or income from property. The distinction is fact-specific and depends on the taxpayer's overall conduct, with the primary consideration being the extent of effort and activity invested in generating the income. This position is reasonable, though the issue may ultimately be tested through future litigation.
An experienced Canadian crypto tax lawyer can help investors determine whether their staking income is more likely to be classified as business or property income based on their unique circumstances.
Income Inclusion Timing: When Staking Rewards Become Taxable
As established in Canderel v. R., [1998] 1 S.C.R. 147, a taxpayer is entitled to adopt any method of calculating profit that presents a true picture of income for the year, so long as it aligns with applicable law and generally accepted business principles.
According to the CRA, staking rewards are typically included in income at the time they are credited to the taxpayer's account on a registered platform and cannot be deferred until they are later disposed of. When those rewards are eventually disposed of, the transaction may give rise to either capital gains or income, depending on the circumstances and the taxpayer's overall course of conduct.
For clarity on timing and reporting, consultation with a Canadian crypto tax lawyer is recommended, particularly where significant staking rewards are involved.
Pro Tax Tips – Canadian Tax Treatment of Crypto Staking Income
- Depositing or staking crypto assets on CSA-registered platforms does not constitute a disposition.
- Staking rewards are taxable as income at the time they are credited, not when they are later disposed of.
- Whether staking rewards are business income or property income depends on the taxpayer's facts and circumstances.
- Investors should keep detailed records of crypto deposits, staking activities, credited rewards, and disposals.
Given the complexity and evolving nature of CRA's positions, consulting with an experienced Canadian crypto tax lawyer is strongly recommended before filing.
Frequently Asked Questions (FAQs)
What if I hold and stake my crypto assets on a non-registered platform?
The CRA's views discussed above apply specifically to platforms registered with CSA members, meaning the provincial or territorial securities regulators. That said, the same tax principles apply regardless of whether income is earned on registered or non-registered platforms, since Canadian taxpayers are taxed on their worldwide income. Because some of these determinations are fact-specific and may vary case by case, they are not fixed. To ensure proper compliance with tax laws, they should be reviewed by a Canadian crypto tax lawyer.
I disagree with the CRA's position. What are my options?
The CRA's tax interpretations reflect its views on certain issues, but they are not legally binding. If you disagree with the CRA's position, you may file your taxes based on your own interpretation of the law. If the CRA later issues an assessment that differs from your filing, you have the right to challenge the assessment by submitting a notice of objection. Before filing a return that conflicts with the CRA's view, or if you intend to object to an assessment, it is highly advisable to seek guidance from experienced Canadian crypto tax lawyers.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
