Government Attitude and Definition

The federal government of Canada is experimenting with blockchain technology in many sectors. The National Research Council is testing blockchain to disseminate real-time research award and financing information.[i] The Canada Border Services Agency is taking part in a blockchain-based pilot project to improve data accuracy and expedite the transit of commodities.[ii]

The Bank of Canada is currently researching the impacts of implementing a central bank digital currency. Senior authorities have suggested that there are two key scenarios that may justify the creation of a central bank digital currency: when the usage of physical cash is decreased or abolished, and when private currencies make significant inroads.[iii]

Officials believe that “stablecoins” — crypto assets backed entirely or partially by cash or commodity holdings – are the most promising of these private currencies.[iv] According to the Bank of Canada, “stablecoins have better chances for general acceptance and more capacity to significantly revolutionize the world of money and payments” than earlier kinds of cryptocurrencies. The Bank of Canada cites the Facebook-connected “Libra Coin” as a “strong example of a disruptive technology that influences how the Bank must respond to the future of money.”[v]

The Bank of Canada has also been participating in “Project Jasper,” a research program developed in collaboration with Payments Canada and TMX Group to experiment with the usage of distributed ledger technology in the context of payments.

In Canada, cryptocurrencies are not considered legal cash. Section 8 of the Currency Act states that coins produced by the Royal Canadian Mint under the Royal Canadian Mint Act and notes issued by the Bank of Canada under the Bank of Canada Act are legal currency.



The taxation of cryptocurrencies in Canada remains uncertain, with no legal authority or administrative direction. The Canadian federal tax authority (the Canada Revenue Agency, or “CRA”) has expressed high-level views on the classification of certain payment tokens (such as Bitcoin) and the potential income and sales tax implications of crypto mining and certain commercial transactions involving tokens; however, these views are extremely limited.[vi] Furthermore, while the Canadian federal government has made effort to fill the hole and clear up certain uncertainties, considerable work has to be done to cement the underlying tax structure.

Much of the current study of the prospective tax treatment of bitcoin transactions in Canada is based on an extrapolation of these administrative stances and weak legal framework to situations that Canadian lawmakers and tax administrators have not explicitly explored. It is envisaged that in the near future, further clarification will be offered that will not be restricted to Bitcoin/payment instruments, but will also address more recent breakthroughs in cryptocurrency technology and their expanding distribution to, and usage by, the public, including ICOs.

How Cryptocurrency is Treated for Income Tax Purposes

Currently, the CRA maintains that, despite its name, a cryptocurrency (particularly, a payment token such as Bitcoin) is not a “currency” for income tax purposes. Rather, such a cryptocurrency is analogous to a commodity (although a “intangible”), the value of which is determined by external variables such as investor mood and simple supply/demand. According to this viewpoint, this sort of cryptocurrency may be compared to the virtual counterpart of a valuable metal such as gold or silver. If appropriate, such a classification might have considerably different tax ramifications under Canadian tax law than “normal” cash (including foreign currency) transactions. It should be noted that the CRA has typically been mute on its opinions on cryptocurrencies other than payment tokens (i.e., Bitcoin). As a result, unless otherwise specified, references to “cryptocurrency” following are typically limited to payment tokens.

a) Acquiring Cryptocurrency

The threshold question is whether the initial purchase of a cryptocurrency constitutes a taxable event that may result in a Canadian income tax obligation for the individual making the purchase. The answer is dependent on how, why, and under what conditions the cryptocurrency is obtained.

The purchase of cryptocurrencies as a pure speculative investment, analogous to real gold or a publicly listed securities, is typically not a taxable event for the individual making the purchase. However, the acquisition will determine the holder’s “cost” in the cryptocurrency for Canadian tax purposes, which is important in determining the tax repercussions that will be realized later when the cryptocurrency is sold or otherwise exchanged.

This is in contrast to the purchase of cryptocurrencies as payment for the provision of goods or services, or as recompense for some other payment right. At the moment, such transactions are typically controlled by the CRA’s position on “barter transactions,” which is discussed in further detail below under the title “Using cryptocurrencies in business transactions – barter transactions”.

Where cryptocurrency is gained as a consequence of commercial “mining” operations, the CRA’s current administrative stance implies that the miner is subject to income tax at the moment the cryptocurrency is earned. This is predicated on the idea that mining is a service and that the mined bitcoin is received as payment for those services. The CRA applies its stance on barter transactions in establishing the amount that must be included in income at the time the cryptocurrency is generated, just as it does for other services that are rewarded with cryptocurrency. This is an extension of previous CRA administrative guidelines on cryptocurrency mining, giving additional clarity on the quantity and timing of revenue recognition for miners.

b) Determining a Holder’s Tax Cost in Cryptocurrency

 Once a cryptocurrency has been bought, it is critical to establish its cost for Canadian tax reasons, which is a basic notion for estimating the future income tax ramifications of a cryptocurrency disposal.

When a cryptocurrency is acquired in exchange for Canadian currency, the cost of the cryptocurrency for income tax purposes is the cash paid plus any directly connected acquisition expenditures. If foreign money is used, the holder is typically obligated by Canadian tax rules to convert the foreign currency into the Canadian-dollar equivalent at the relevant rate.

Cryptocurrencies may, of course, be obtained through a variety of methods, including commercial business transactions and other types of “barter” trades. The specific facts surrounding each such transaction may have significant differences in determining the holder’s tax expense upon the acquisition of the cryptocurrency.

c) Tax Considerations When Disposing of Cryptocurrency

On the eventual disposal of a cryptocurrency, a person will realize taxable income (or loss). This includes selling the cryptocurrency for cash and using it to pay for products or services, or as payment for other contractual rights/obligations (i.e., a “barter transaction,” as defined below).

If the cryptocurrency has a value that is greater than its tax cost at the time of disposal, it will be important to decide whether the holder should report the excess as a capital gain (i.e., a capital gain) or if the profits should be reported as business income. For tax reasons, this is a significant distinction.

In general, buying and selling cryptocurrencies can be considered capital account transactions unless they are carried out in the context of a business of buying and selling such cryptocurrencies, or unless such buying and selling otherwise amounts to a “adventure or concern in the nature of trade.” This is a factual, case-by-case assessment that necessitates a thorough examination of the holder’s cryptocurrency activities.

If a person acquires cryptocurrency as payment for goods or services in the ordinary course of business (even if the person is not in the business of buying and selling cryptocurrencies as part of a speculative investment business), any appreciation realized when the person disposes of the cryptocurrency may be fully taxable as business income. Again, this is a fact-dependent problem that should be handled on a case-by-case basis and is discussed in further depth below.

Using Cryptocurrencies in Business Transactions

a) Barter Transaction

Accepting a commodity in return for the supply of an item or service, or as consideration for some other kind of payment right, is subject to tax treatment under Canada’s “barter transaction” tax laws.

In a cryptocurrency barter transaction, the individual (referred to below as the “provider”) who takes a cryptocurrency as payment in return for an item, service, or other right must consider the following:

  • For Canadian income tax purposes, the supplier will typically realize business income equal to the fair market value of the products, services, or other rights given (the “Business Income Inclusion“). The value of the cryptocurrency at the time of the transaction is typically not the deciding factor for this purpose (though not for other ones – see, for example, the sales tax consequences outlined below).
  • In most cases, the supplier will buy the cryptocurrency at a cost equivalent to the Business Income Inclusion for Canadian income tax reasons. The provider now owns the cryptocurrency and must (at some point) do something with it, such as sell it to an investor or use it to buy goods/services/rights in conjunction with its own company. Any gain or loss realized by the provider on an eventual disposal of the cryptocurrency (i.e., the difference between the provider’s cost in the cryptocurrency and the amount received on the eventual disposition) will be taxable to the provider at the time of the ultimate disposition. The question then becomes whether such gain/loss is treated as being on full income account or on account of capital (the income tax treatment differing materially between the two). Managing the provider’s post-acquisition exposure to changes in the value of the cryptocurrency will be a substantial and practical problem.

Another sort of increasingly common transaction (which may or may not be properly classified as a “commercial transaction”) is the acquisition of one cryptocurrency (“crypto #1”) by a person in exchange for another cryptocurrency (“crypto #2”). This type of transaction is also known as a barter transaction since it involves the exchange of one commodity for another. In general, the individual will be regarded to have acquired crypto #1 at a tax cost equal to the fair market value of the crypto #2 given up in return, as determined at the time of the barter transaction. The person acquiring crypto #1 will also be considered to have disposed of crypto #2, and will have to report any income/gain in respect of crypto #2 for Canadian income tax purposes (the person must therefore know his/her tax cost in crypto #2, which depends on the manner in which crypto #2 was originally acquired by such person).

b) Sales Tax Implications

Canada levies a federal sales tax (the goods and services tax, or “GST”) on the delivery of numerous products and services, with specific exclusions. Most Canadian provinces and territories also charge a sales tax, which is sometimes “harmonised” with the federal sales tax to produce a single blended federal/provincial (or territorial) rate. Persons who are obligated to charge and collect federal GST (or harmonised sales tax) in respect of a business activity can typically claim a refund in respect of such tax that the person directly incurs in the course of carrying on such business (also known as an input tax credit, or “ITC”). The ITC method is typically intended to reduce sales tax duplication along a supply chain and to guarantee that the expense of sales tax is eventually borne entirely by the end customer of any given item or service.

A supplier of goods or services that takes cryptocurrencies in lieu of government-issued money must charge, collect, and submit the applicable sales tax, just like any other provider of goods or services subject to federal and provincial/territorial sales taxes. In the case of cryptocurrencies, this may be easier said than done.

In this regard, the provider must be careful not to utilize the Business Income Inclusion amount (which is important under the present administrative policy of the Canadian tax authorities to establish the provider’s income tax connected with the transaction) in calculating the applicable amount of sales tax.

The Canadian tax authorities demand that the supplier charge, collect, and pay GST based on the value of the cryptocurrency at the moment of sale for federal GST purposes. If incurred in the course of a commercial activity, the purchaser should be allowed to claim an ITC (if available) for the whole GST charged.

While this may appear to be manageable on the surface, the supplier faces a few practical issues:

  • How can the supplier estimate the worth of the cryptocurrency at the exact moment of sale, especially when cryptocurrencies are sold in non-traditional marketplaces and the value might fluctuate drastically from day to day (potentially minute by minute)? What records must the service provider retain in order to substantiate the amount of sales tax charged?
  • How does the supplier charge, collect, and remit sales tax in a cryptocurrency-only transaction, when the sales tax component is likewise paid in cryptocurrency? The provider must remit to Canadian tax authorities in Canadian money (not cryptocurrency), which means the provider must either transmit a comparable quantity of cash from other sources or sell a sufficient amount of cryptocurrency to produce the cash to meet the remittance. Given the volatility of most cryptocurrencies, the supplier assumes an inherent risk in collecting sales tax in cryptocurrency.

Corporate officers and directors are individually liable for any failures to collect or remit sales tax. As a result, it is important for the provider of goods/services to take reasonable precautions to assure complete compliance and reduce any related risk.

Another sales tax issue associated with cryptocurrency transactions is whether the person disposing of the cryptocurrency (e.g., the person using the cryptocurrency to purchase goods or services or trading one cryptocurrency for another) is required to charge and collect sales tax on the cryptocurrency’s value. In this regard, if the disposition of a cryptocurrency is a barter transaction similar to the disposition of a commodity, could such disposition be considered as a taxable supply of the cryptocurrency in the same manner as the disposition of a commodity is? If this is the case, the compliance responsibilities and expenses connected with ordinary cryptocurrency transactions may become excessively complicated and beyond the realistic capabilities of many bitcoin holders/users. The Canadian Department of Finance published proposed legislation in May 2019 intended at simplifying the federal sales tax on some transactions utilizing “virtual payment instruments” (“VPIs”). In this regard, a VPI typically includes payment tokens like Bitcoin, but specifically excludes tokens that function similarly to gift cards or have functionality on a gaming or affinity/rewards program platform. Transactions involving VPIs would be excluded from federal sales tax as a “financial instrument” under these ideas. These ideas, which have yet to be enacted, indicate the Canadian federal government’s readiness to address the complex tax and compliance challenges connected with cryptocurrencies, albeit in a very restricted and targeted manner at this time.

If you have any questions about your business’s cryptocurrency needs, contact Cactus Law today to speak with a lawyer specializing in corporate law.


The information presented above is solely for general educational and informational purposes. It is not intended to be, and should not be taken as, legal advice. The information given above may not be applicable in all cases and may not even reflect the most recent authority after the date of its publication. As a result, please refer to all updated legislation, statutes, and amendments. Nothing in this article should be relied on or acted upon without the benefit of legal advice based on the specific facts and circumstances described, and nothing in this article should be interpreted otherwise.


About the Author:

Kanwar Gujral is entering his third year at Osgoode Hall Law School in Toronto, Ontario. He has a dedicated interest in real estate, business, and corporate law. 



[iii] Bank of Canada, Money and Payments in the Digital Age, Remarks by Timothy Lane, Deputy Governor, CFA Montreal Fintech RDV2020, February 2020.

[iv][iv] Ibid.

[v] Ibid.

[vi] Certain provincial tax authorities, namely Revenu Québec, have also published their own administrative positions on certain narrow issues (i.e., provincial sales tax) dealing with cryptocurrencies.