CRA rules on Bitcoin, Ethereum, DeFi, NFTs, staking, and how to report your crypto to the Canada Revenue Agency
The Canada Revenue Agency (CRA) does not consider cryptocurrency to be legal tender or currency. Instead, the CRA treats crypto as a commodity for income tax purposes. This means most crypto transactions are taxable events that must be reported on your T1 income tax return.
Every time you dispose of cryptocurrency — sell it, trade it for another crypto, use it to buy goods or services, or give it away — you have a taxable event. The CRA has been explicit about this since 2013 and has significantly increased enforcement and audit activity in the crypto space in recent years.
The most important tax question for Canadian crypto investors: are your crypto gains taxed as capital gains or business income? The distinction has a significant tax impact.
If your crypto activity is considered investing (not a business), gains are treated as capital gains. Only 50% of capital gains are included in your taxable income (the "inclusion rate"). If you made $100 in crypto gains as capital gains, only $5,000 would be added to your taxable income and taxed at your marginal rate.
Note: As of 2024, the federal government proposed increasing the capital gains inclusion rate to 2/3 (66.67%) for gains over $250,000. This is in flux as of early 2025 — consult a tax professional for the current status.
If the CRA determines your crypto activity constitutes a business (e.g., day trading, commercial mining, or repeated transactions with profit intention), gains are 100% taxable as business income. Business losses can also be deducted against other income, which is an advantage.
The CRA looks at factors like frequency of trading, knowledge and time spent, financing (did you borrow to invest?), and whether you have a profit-motivated business plan. There's no bright-line rule — it's a facts-and-circumstances determination. Many active crypto traders are surprised to find the CRA classifies them as businesses.
| Event | Taxable? | Notes |
|---|---|---|
| Selling crypto for CAD | Yes | Capital gain or loss = proceeds - ACB |
| Trading BTC for ETH (or any crypto-to-crypto) | Yes | Treated as selling BTC at current FMV |
| Using crypto to buy goods/services | Yes | Gain/loss based on FMV at time of use |
| Gifting crypto | Yes | Deemed disposed at FMV |
| Buying crypto with CAD | No | Acquisition; sets your ACB |
| Moving crypto between your own wallets | No | Not a disposition; keep records |
| Receiving crypto as payment/income | Yes (income) | FMV at receipt is income; sets your ACB |
| Crypto staking rewards | Yes (income) | FMV at receipt is income |
| Mining rewards | Yes (income or business) | FMV at receipt; business or personal income |
| DeFi interest/yield | Yes (income) | FMV at receipt is income |
To calculate your capital gain, you need your Adjusted Cost Base (ACB) — essentially what you paid for your crypto. For cryptocurrency, the ACB is calculated on a per-currency basis using the average cost method.
Example: You buy 1 Bitcoin for $30,000. You later buy 0.5 BTC for $20,000 ($40,000 per BTC). Your average ACB is now ($30,000 + $20,000) / 1.5 BTC = $33,333 per BTC. If you then sell 1 BTC for $50,000, your capital gain is $50,000 - $33,333 = $16,667.
This calculation must be done across all your purchases for each cryptocurrency. If you've bought Bitcoin 50 times over 5 years, you need to calculate the running average ACB for every sale. Crypto tax software (Koinly, CoinTracker, Crypto Tax Canada) automates this calculation from exchange CSV exports.
Decentralized Finance (DeFi) creates complex tax scenarios because many DeFi interactions involve dispositions or income recognition:
Depositing crypto into a lending protocol to earn interest: the interest earned is income at FMV when received. Depositing the underlying crypto into the protocol may or may not be a disposition depending on whether you receive a different token in return (e.g., aTokens or cTokens).
Adding crypto to a liquidity pool and receiving LP tokens is likely a disposition of the deposited assets at their FMV. When you withdraw, you're acquiring new assets at FMV. Trading fees earned are income. The impermanent loss is a difficult area — there's no specific CRA guidance on how to treat it.
Creating and selling NFTs: proceeds are income (business income for creators). Buying and selling NFTs as investments: capital gains or business income depending on frequency and intent. Receiving NFT airdrops: income at FMV at time of receipt.
This is a common misconception. You cannot hold Bitcoin, Ether, or other cryptocurrencies directly inside a TFSA or RRSP. The Income Tax Act restricts registered accounts to "qualified investments" — and most cryptocurrency does not qualify.
However, you can hold crypto-adjacent investments in your TFSA/RRSP:
Gains inside a TFSA or RRSP from these qualified crypto ETFs are sheltered from tax, which is a significant advantage for long-term crypto holders.
The CRA requires you to keep detailed records of all crypto transactions. For each transaction, you should record:
Keep records for at least 6 years — the CRA can audit this far back (and potentially further for cases of fraud). Exchange platforms may delete historical records, so always download your transaction history from exchanges regularly and keep your own copies.