How Cryptocurrency Is Taxed in Canada

Introduction
Understanding how cryptocurrency is taxed in Canada is essential for investors, day traders, miners, stakers, NFT creators, DeFi participants, and anyone involved in digital assets. CRA treats cryptocurrency not as traditional currency but as a commodity, meaning that each transaction is a taxable event. Whether you buy, sell, trade, convert, mine, stake, or receive crypto as income, the transaction must be reported. Crypto tax enforcement in Canada has increased dramatically, supported by global information-sharing, exchange reporting, blockchain analysis tools, and cross-border audits. Québec enforces strict provincial reporting for crypto income. This guide explains exactly how cryptocurrency is taxed in Canada and how to stay compliant.

Legal and Regulatory Framework
How cryptocurrency is taxed in Canada is governed by the Income Tax Act, CRA guidance on digital assets, Form T1135 for foreign crypto holdings, CRA capital gains rules, business income rules, GST/HST interpretation for crypto, Québec’s Taxation Act, TP-1 provincial reporting, and DeFi/staking income rules. CRA uses blockchain tracing tools, FATCA/CRS information, and exchange compliance requirements to enforce crypto reporting. Canadian exchanges must provide user information to CRA when requested.

Crypto as Capital Gains vs. Business Income
Crypto transactions may be taxed as capital gains or business income depending on your activity. Most long-term investors pay capital gains tax when disposing of crypto. Day traders, frequent traders, NFT creators, and mining operations may be taxed as business income. CRA factors include:
frequency of transactions
intention to profit
commercial-level activity
use of automation or bots
number of platforms used
If classified as business income, 100 percent of profits are taxable. If classified as capital gains, only 50 percent is taxable. Understanding the correct classification is essential.

When Are Crypto Transactions Taxable?
Almost every crypto action triggers a taxable event. Taxable events include:
selling crypto for cash
trading one crypto for another (BTC → ETH)
converting crypto to stablecoins
using crypto to buy goods or services
receiving crypto as payment
mining crypto
staking rewards
airdrops
liquidity pool rewards
NFT sales or royalties
Any increase in value from the time you acquired the crypto to the time you disposed of it is taxable. Even if no money was withdrawn, tax is still owed.

Calculating Capital Gains on Crypto
Capital gains are calculated as:
proceeds of disposition – adjusted cost base
Both amounts must be converted to Canadian dollars using proper FX rates. You must track:
purchase price
transaction fees
exchange rates
date acquired
date disposed
Fair market values must be documented. Failure to track ACB properly is one of the most common crypto tax mistakes.

Trading Crypto for Crypto Is Taxable
Exchanging Bitcoin for Ethereum is treated the same as selling Bitcoin for cash. CRA considers this a disposition. Many Canadians mistakenly believe crypto-to-crypto trades are tax-free; CRA has confirmed they are fully taxable.

Crypto Mining Tax Rules
Mining cryptocurrency is taxable income. CRA categorizes mining as either:
a hobby (rare)
a business (most cases)
Based on the scale of operations. Mining income must be reported at the fair market value of coins on the day they are earned. Mining expenses may be deductible if classified as a business, including:
equipment
electricity
repairs
internet costs
rent
If the mining operation involves significant investment, it is almost always treated as business income.

Staking, DeFi, and Yield Farming
Staking rewards are taxable as income when received. Later gains upon disposal are treated as capital gains. DeFi interactions such as lending, liquidity pools, and governance rewards may create business income or capital income depending on activity level. CRA analyzes each DeFi protocol individually. Many DeFi actions involve swap-based taxable events.

Airdrops and Crypto Rewards
Airdrops are taxable at the moment received if they are a reward or incentive. If received randomly without action, CRA may treat them as having nominal value initially, taxable upon disposition. Each airdrop must be reviewed individually.

NFTs and Digital Asset Creation
NFT creators may be considered business operators. Income from NFT sales, minting, royalties, or marketplace fees may be business income. NFT investors face capital gains rules similar to other crypto assets. GST/HST may apply to NFT creators operating as businesses.

Crypto Received as Payment for Goods or Services
Crypto received as payment is taxed as business income at fair market value. For contractors and businesses, crypto is treated as if receiving money. CRA expects accurate valuation and invoicing. TPS/TVQ (GST/QST) applies if the service provider is registered.

Foreign Crypto Exchanges and T1135 Reporting
Crypto held on foreign exchanges may require T1135 reporting if cost exceeds $100,000 CAD. Platforms such as Binance, Kraken, KuCoin, Bitfinex, Coinbase (depending on account type), and foreign DeFi wallets may count as foreign property. CRA has clarified that crypto on foreign platforms qualifies as specified foreign property unless held on a Canadian exchange. Failing to file T1135 can result in penalties up to $2,500 or more.

Crypto Held in Cold Wallets
Cold storage wallets such as Ledger or Trezor are not automatically considered foreign property. It depends on the platform used to acquire coins. CRA examines the origin of the asset and the platform used for storage. Many taxpayers make mistakes in classifying wallet location.

Losses From Hacks, Scams, or Lost Keys
Losses from hacks or scams may be deductible if classified as capital losses, but strict documentation is required. CRA may deny claims without proof. Lost private keys may qualify as a disposition event. Determination requires a case-specific analysis.

Québec-Specific Crypto Reporting
Québec residents must report crypto income on TP-1 and follow provincial FX conversion rules. Revenu Québec audits crypto aggressively, focusing on unreported gains, foreign accounts, and U.S. exchange activity. Québec may enforce penalties independent of CRA.

Common Crypto Tax Mistakes
Common errors include:
failing to track ACB
thinking crypto-to-crypto trades are tax-free
not reporting staking or mining income
mixing personal and business crypto
failing to file T1135 when required
incorrect FX conversion
treating NFTs incorrectly
omitting DeFi transactions
not reporting U.S. exchange activity
CRA is aggressively auditing crypto users using exchange data and blockchain tracing.

Key Court and CRA Positions
Courts uphold CRA’s classification of crypto as a commodity, not currency. CRA’s published guides confirm that every swap, trade, or disposal is taxable. CRA also enforces penalties for unreported foreign crypto holdings. Recent cases show CRA using blockchain analysis to detect hidden wallets.

Why CRA and Revenu Québec Audit Crypto Users
High risk, high gains, and anonymous transactions attract audit scrutiny. CRA targets:
foreign exchange usage
NFT marketplace accounts
blockchain addresses linked to Canadians
U.S. exchange accounts
crypto mining operations
crypto traders with large deposits
unreported crypto cash-outs
DeFi platform interactions
CRYPTO + T1135 mismatches are a major audit trigger.

Mackisen Strategy
Mackisen CPA provides full crypto tax support. We calculate ACB, reconstruct transaction histories, prepare T1135 filings, classify business vs capital income, review DeFi and staking activity, prepare mining income statements, correct past filings, manage FX conversions, and defend clients against CRA and Revenu Québec audits. We also provide planning for long-term crypto tax efficiency.

Real Client Experience
A Montréal client with 42,000 crypto-to-crypto trades had no records; Mackisen reconstructed ACB and prevented a major reassessment. A Québec miner failed to report income for three years; we corrected filings and negotiated penalty relief. An investor with NFTs and staking across multiple platforms faced CRA audit; Mackisen prepared full transaction mapping. Another client lost crypto on a hacked exchange; we documented the loss and claimed capital loss relief.

Common Questions
Is crypto taxed when I buy it? No.
Is crypto taxed when I trade it? Yes — trading triggers capital gains.
Is staking income taxable? Yes as income.
Do I need to file T1135? Yes if foreign crypto exceeds $100,000 cost base.
Are NFTs taxed? Yes as business income or capital gains.
Does CRA track crypto? Yes — through exchanges and blockchain analysis.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians understand how cryptocurrency is taxed in Canada, ensuring accurate reporting, minimizing tax burdens, and protecting against CRA/ARQ audits. Whether you trade, mine, stake, or invest long-term, our expert team provides full compliance and strategic tax planning.