The CRA’s Present Position on Crypto-Tax


The CRA’s Present Position on Crypto-Tax

Part 1 of the Smartblock Law "Crypto-Tax Primer" Blog Series


Chetan Phull · Feb 23, 2018



There is no directly binding authority, in the form of legislation or an advance tax ruling, regarding Canadian cryptocurrency taxation.

However, the CRA has provided guidance on certain cryptocurrency issues in the context of income tax and GST-HST, respectively pursuant to the Income Tax Act and the Excise Tax Act.

This blog post surveys the CRA’s position to date on these issues.

Crypto = Commodity

In Canada, there are currently three recognized functions of digital currency (also known as “cryptocurrency” or “virtual currency”):

  • a form of money;

  • a commodity; and

  • a payments system.

(See: Standing Senate Committee on Banking, Trade and Commerce, “Digital Currency: You Can’t Flip This Coin!” [June 2015] [“Committee’s 2015 Report”] at 12.)

Notwithstanding the recognized use of digital currency as money, the CRA has stated that virtual currencies are not considered legal tender.

Rather, virtual currencies are treated as commodities and invoke the rules of barter transactions. (See: CRA Doc No. 2013-0514701I7 [Dec 23, 2013] [“2013 CRA letter”]; CRA’s 2015 fact sheet, “What you should know about digital currency” [“2015 Fact Sheet”]).

Crypto Income Tax Principles

Cryptocurrency transactions for goods or services will invoke the following income tax rules:

(a) Common denomination of value

(b) Value quantification for arm’s length transactions

  • the taxpayer’s received value is equal to or greater than the value of the supplied good or service (Barter Rules, para. 3);

  • a taxpayer’s received value is the price that would normally be charged to a stranger for the supplied good or service (Barter Rules, para. 7);

  • if the taxpayer’s received value can be ascertained, but the exchanged value cannot be ascertained, the transaction price is generally considered to be the received value (Barter Rules, para. 8).

(c) Value quantification for non-arm’s length transactions

  • the taxpayer’s received value can be either: (a) the price that would normally be charged to a stranger for the supplied good or service; or (b) fair market value (Barter Rules, para. 7).

(d) Income vs. Capital vs. Inventory

(e) Gifts

  • in the context of gifts to a qualified donee, the gift’s fair market value in CAD is considered for the donor’s tax purposes. This rule applies irrespective of whether the gift is cryptocurrency, or property originally purchased with cryptocurrency by the donor. (See 2013 CRA letter);

  • virtual currencies acquired as gifts (excluding employment fringe benefits) are not taxable in the hands of the donee (see 2014 CRA letter).

(f) Specified foreign property

Crypto GST-HST Principles

Private businesses earning over $30,000 annually must charge GST-HST on their goods or services (Excise Tax Act, ss.148(1)(b) and 240(1)(a)).

This rule also applies to parties transacting in cryptocurrency with a private business. The traded goods and/or services will be taxed GST-HST in CAD, on the basis of the above barter rules (see 2013 CRA letter).

Moreover, the taxpayer who receives cryptocurrency may also need to pay GST-HST, on the basis of the CRA’s view of cryptocurrency as a commodity (see, generally, 2014 Senate Committee Tax Proceeding).

It is possible that cryptocurrency is exempt from GST-HST. Cryptocurrency potentially falls within the broad definition of “money” in the Excise Tax Act, despite it not being recognized as legal tender by the CRA. If cryptocurrency is money, this triggers the definition of “financial services”, which is exempt from GST-HST (see Excise Tax Act, s.123(1), and Schedule V, Part VII).

This was alluded to in the 2014 Senate Committee Tax Proceeding:

Ms. [Eliza] Erskine: ... [F]rom the goods and services tax point of view, ... they are currently looking at whether digital currency is money, because that is a defined term for GST purposes. Also, the GST treatment may end up varying, depending on whether it is currency. A goods and services tax, which is a sales tax or a services tax, may — when you are exchanging cash for cash, it has different goods and services tax implications.

However, it is presently uncertain whether this potential exemption is effective.

Personal vs. Commercial Activity

“Personal” and “commercial” cryptocurrency activities carry different tax consequences, for both income tax and GST-HST issues.

Cryptocurrency activities will be considered commercial in nature if there is a subjective intention to profit, and evidence of business-like behaviour which supports that intention (see Stewart v. The Queen, 2002 SCC 46).

If the cryptocurrency is considered commercial property, the next question is whether it constitutes “inventory” versus “capital”.

All of these issues depend on the particular facts of the case. (See 2014 CRA letter, in which the tax liability of a Bitcoin miner was considered.)


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