Cryptocurrency Accounting & Taxation

A Comprehensive Guide for Canadian Taxpayers and Quebec Residents

Cryptocurrencies — Bitcoin, Ethereum, and thousands of other digital assets — have moved from speculative novelty to mainstream financial instruments. Yet despite their widespread adoption, many Canadian taxpayers and Quebec residents remain uncertain about their tax obligations. The Canada Revenue Agency (CRA) and Revenu Québec have made one thing very clear: cryptocurrency is taxable, and non-compliance carries significant risk.

This guide demystifies the taxation of digital assets in Canada and Quebec, covering everything from basic principles to complex scenarios like DeFi, staking, and business income classification.

1. How Canada Taxes Cryptocurrency

Canada does not treat cryptocurrency as legal tender but as a commodity for tax purposes. This classification stems directly from the Income Tax Act (ITA) and is reinforced by CRA guidance. Every time you dispose of cryptocurrency — whether by selling, trading, gifting, or even using it to buy goods — you trigger a taxable event.

1.1 Capital Gains vs. Business Income

The single most important tax determination for any crypto investor or trader is whether gains are characterized as capital gains or business income. This distinction has profound tax implications:

Characteristic	Capital Gain Treatment	Business Income Treatment
Tax Rate	50% inclusion rate (only half of gain is taxable)	100% fully taxable
Eligible for LCGE?	No (crypto is not qualified property)	No
Loss Deductibility	Only against capital gains	Against all income
Who it applies to	Passive investors, long-term holders	Active traders, crypto businesses
CRA scrutiny	Lower	Higher — must maintain detailed books

The CRA uses several factors to determine classification: frequency of transactions, holding period, declared intent at time of purchase, knowledge of crypto markets, and whether the activity constitutes a business venture. There is no bright-line test — each case is evaluated on its facts.

💡 Capital Gains Inclusion Rate — 2024 Proposal Cancelled

The 2024 federal budget proposed increasing the capital gains inclusion rate from 1/2 to 2/3 on gains above $250,000 for individuals (and all corporate gains). On January 31, 2025, the government deferred the effective date to January 1, 2026. On March 21, 2025, Prime Minister Carney formally cancelled the proposed increase altogether. The capital gains inclusion rate remains 1/2 (50%) for all taxpayers. Separately, the Lifetime Capital Gains Exemption (LCGE) was increased to $1,250,000 (from $1,016,836) effective June 25, 2024, for qualifying small business shares and farming/fishing property.

1.2 Adjusted Cost Base (ACB) — The Foundation of Crypto Tax

To calculate a capital gain or loss, you must know your Adjusted Cost Base (ACB). The ACB is essentially what you paid for your cryptocurrency, including transaction fees paid to acquire it. When you sell or dispose of crypto, your gain or loss is:

Capital Gain (or Loss) = Proceeds of Disposition − ACB − Selling Costs

For taxpayers holding the same type of cryptocurrency acquired at different prices, Canada requires you to use the average cost method — not FIFO or LIFO. This means every purchase changes your average ACB per unit.

Example — ACB Calculation

Date	Transaction	Units	Price/Unit	Total Cost	Running ACB/Unit
Jan 5, 2023	Buy BTC	1.00	$30,000	$30,000	$30,000
Apr 12, 2023	Buy BTC	0.50	$40,000	$20,000	$33,333
Aug 20, 2023	Sell BTC	0.75	$45,000	—	Gain: $8,750
Dec 1, 2023	Buy BTC	1.00	$35,000	$35,000	$34,074

Transaction fees paid when acquiring crypto are added to the ACB. Fees paid when selling reduce your proceeds. Keeping meticulous records of every transaction — date, amount, price in CAD, fees — is essential and legally required.

2. Taxable Events — What Triggers a Tax Obligation?

A common misconception is that taxes only apply when you convert crypto to Canadian dollars. In reality, a much broader range of activities constitutes a 'disposition' under Canadian tax law:

Event	Taxable?	Tax Type?	Notes
Sell crypto for CAD/USD	✅ Yes	Capital Gain/Loss or Business Income	Most common taxable event
Trade crypto-to-crypto (e.g., BTC → ETH)	✅ Yes	Capital Gain/Loss	FMV at time of trade
Use crypto to buy goods/services	✅ Yes	Capital Gain/Loss	FMV at time of purchase
Receive crypto as salary/wages	✅ Yes	Employment Income	Full FMV is income
Receive crypto as self-employment payment	✅ Yes	Business Income	Full FMV is income
Mining rewards received	✅ Yes	Business or Property Income	FMV at date received
Staking rewards received	✅ Yes	Property or Business Income	CRA guidance evolving
DeFi yield/interest received	✅ Yes	Property or Business Income	Taxed when received
Airdrop received	⚠️ Uncertain	Capital gain on disposal (zero ACB) or Other Income	CRA guidance is unclear; individual investors generally have zero cost basis, taxed as capital gains on disposal
Crypto-to-crypto within a wrapped asset	⚠️ Likely Yes	Capital Gain	E.g., BTC → WBTC
Gift of crypto to arm's length party	✅ Yes	Deemed disposition at FMV	Donor may have capital gain
Gift to spouse/common-law partner	⚠️ Attribution rules	Deferred — attribution applies	Income attributed back to donor
Transfer between your own wallets	❌ No	Not a disposition	Must document as same-owner transfer
Buying crypto with CAD	❌ No	Not a disposition	Just establishes ACB
Crypto held in a wallet (unrealized)	❌ No	Not a disposition	No tax until disposed

⚠️  Crypto-to-Crypto Trades Are Taxable

Many Canadians mistakenly believe that trading one cryptocurrency for another (e.g., swapping Bitcoin for Ethereum) is tax-deferred. The CRA is explicit: every crypto-to-crypto trade is a disposition of the first asset at fair market value on the date of the trade. Failure to report these transactions is a common audit trigger.

3. Quebec-Specific Tax Considerations

Quebec has its own provincial income tax system administered by Revenu Québec, and Quebec residents must file two tax returns: one federal (T1) with the CRA, and one provincial (TP-1) with Revenu Québec. Fortunately, Quebec largely follows the same crypto tax principles as the federal government, with some important nuances.

3.1 Revenu Québec's Position on Cryptocurrency

Revenu Québec treats cryptocurrency as a property, not currency, consistent with federal treatment. All taxable events that apply federally also apply for Quebec purposes. Gains characterized as capital gains at the federal level receive the same treatment provincially — 50% inclusion (subject to the proposed 2024 federal change's provincial adoption).

3.2 Quebec Capital Gains Deduction

Unlike some provinces, Quebec does not have a separate capital gains deduction for cryptocurrency. The Lifetime Capital Gains Exemption (LCGE) at both the federal and provincial level applies only to qualifying small business shares and farming/fishing property — not to cryptocurrency.

3.3 Tax Filing Differences for Quebec Residents

•       Quebec residents must report all crypto transactions on both their federal T1 and provincial TP-1 returns.

•       Quebec has its own version of the Schedule 3 (Capital Gains) — the TP-274 — for reporting capital dispositions.

•       The Quebec Solidarity Tax Credit and other provincial credits are not impacted by crypto gains unless they push income above clawback thresholds.

•       Quebec sales tax (QST) implications exist for crypto used in commercial transactions (see Section 6).

3.4 Combined Federal and Quebec Tax Rates on Crypto Gains (2024)

Because federal and Quebec provincial tax brackets have different income thresholds, combined rates must be understood by bracket layer. Quebec residents also benefit from a 16.5% federal tax abatement, which reduces the effective federal rate and makes Quebec's combined rates lower than a simple addition of the two rate schedules would suggest.

Quebec 2024 provincial tax brackets:

Quebec Provincial Brackets	Provincial Rate	Notes
$0 – $51,780	14%	First provincial bracket
$51,780 – $103,545	19%	Second provincial bracket
$103,545 – $126,000	24%	Third provincial bracket
Over $126,000	25.75%	Top provincial bracket

Federal 2024 tax brackets (before abatement):

Federal Bracket (2024)	Federal Rate
$0 – $55,867	15%
$55,867 – $111,733	20.5%
$111,733 – $154,906	26%
$154,906 – $220,000	29%
Over $220,000	33%

Because Quebec residents receive a 16.5% federal tax abatement, the effective combined marginal rates on capital gains in Quebec are lower than simply adding federal + provincial rates. For reference, the approximate combined marginal rate on capital gains (at 50% inclusion) ranges from about 13% in the first income bracket to approximately 26.7% at the highest income levels. A qualified CPA should calculate your precise rate based on all sources of income. Business income is taxed at the full combined marginal rates (up to approximately 53% for the highest bracket in Quebec).

4. Mining, Staking, and DeFi

Decentralized finance (DeFi) activities present some of the most complex crypto tax scenarios. The CRA has provided guidance on some areas, while others remain in legal grey zones.

4.1 Cryptocurrency Mining

Mining involves using computing power to validate transactions and earn newly created cryptocurrency rewards. The tax treatment depends on the scale and nature of the activity:

•       Hobby/Occasional Mining: If the CRA determines mining is a hobby (no profit motive, minimal scale), coins received are NOT taxed as income when received. Instead, the cost basis of mined coins is considered zero. Tax arises only when coins are later disposed of, with the entire sale proceeds treated as a capital gain — reported on Schedule 3 of the T1.

•       Commercial/Business Mining: If mining is conducted with a profit motive, a reasonable scale of activity, or through a corporation, it constitutes business income. All mining revenue is fully taxable. Business expenses (electricity, hardware, depreciation via CCA) are deductible.

•       ACB upon receipt: The FMV of mined crypto when received becomes the ACB for future disposition calculations.

💡 Mining Expense Deductions

Commercial miners can deduct legitimate business expenses: electricity costs, internet, dedicated mining hardware (via Class 50 CCA — 55% declining balance), repairs, and a portion of home office costs if applicable. Quebec's Revenu Québec generally follows the same principles.

4.2 Staking Rewards

Proof-of-Stake (PoS) networks reward participants who lock up their cryptocurrency to help validate the network. The CRA's position on staking income is evolving, but the current guidance suggests:

•       Staking rewards are likely taxable when received as either property income or business income, depending on the scale.

•       The FMV of staking rewards at the time of receipt is the income amount.

•       Receiving staking rewards is not a disposition of the staked principal — only withdrawing and converting staking rewards triggers additional tax.

4.3 DeFi Activities — Lending, Yield Farming, Liquidity Pools

DeFi introduces unique tax challenges that the CRA has not yet fully addressed with specific guidance:

•       Lending crypto to DeFi protocols: Interest/yield received is likely property income when received.

•       Liquidity pool (LP) positions: Depositing crypto into an LP may constitute a disposition; receiving LP tokens may create a new ACB calculation. This is an area of significant uncertainty.

•       Wrapped tokens: Converting BTC to WBTC (or similar) is likely a crypto-to-crypto disposition.

•       Yield farming rewards: Token rewards received from yield farming protocols are likely taxable as income when received.

⚠️  DeFi Record-Keeping Complexity

DeFi transactions often occur across multiple protocols, chains, and wallets, with rewards accruing continuously. Taxpayers engaged in DeFi must use specialized crypto tax software (Koinly, Cointracker, Accointing) to aggregate transactions and calculate ACB accurately. Manual record-keeping is insufficient at scale.

5. Cryptocurrency in Corporate and Business Contexts

Many N&R CPA clients operate through corporations or small businesses. The interaction between cryptocurrency and corporate structures introduces additional planning opportunities and compliance requirements.

5.1 Holding Crypto in a Canadian Corporation

Corporations that hold cryptocurrency as an investment are subject to the same capital gains rules as individuals — but at the corporate tax level. Key considerations include:

•       Federal corporate tax rate: 15% (general) or 9% (small business deduction for the first $500,000 of active business income in Quebec).

•       The small business deduction does NOT apply to passive investment income from capital gains — but does apply if trading crypto constitutes an active business.

•       Passive investment income above $50,000 per year in a corporation can reduce the small business deduction limit, impacting tax planning.

•       Refundable Dividend Tax on Hand (RDTOH): Corporate investment income generates refundable tax, refunded when dividends are paid to shareholders.

5.2 Accepting Cryptocurrency as Business Payment

Businesses that accept crypto as payment for goods or services must:

•       Record the CAD fair market value of the crypto received as business revenue at the date of receipt.

•       Track the ACB of crypto received for future disposition calculations.

•       Issue proper invoices reflecting the CAD equivalent value.

•       Collect and remit applicable GST/QST based on the CAD value of the transaction.

5.3 Employee Compensation in Cryptocurrency

If an employer pays wages in cryptocurrency, the FMV of the crypto at the date of payment is treated as employment income for the employee. The employer must:

•       Include the CAD FMV on the employee's T4 slip (Box 14 — Employment Income).

•       Withhold and remit CPP, EI, and income tax based on the FMV.

•       The employee's ACB in the received cryptocurrency is the FMV at the date of receipt.

6. GST/HST and QST on Cryptocurrency Transactions

Sales tax treatment of cryptocurrency in Canada has evolved significantly. Here is the current framework for GST/HST (federal) and QST (Quebec provincial):

6.1 Federal GST/HST Position

As of October 2022, the CRA amended its administrative position: the purchase and sale of cryptocurrency is treated as a financial service for GST/HST purposes, meaning it is exempt from GST/HST. This resolved years of uncertainty for crypto exchanges and trading platforms.

•       Buying or selling crypto: GST/HST exempt (no tax collected or remittable).

•       Mining services provided to third parties: May be taxable depending on facts.

•       Using crypto to purchase taxable goods/services: GST/HST applies based on the CAD FMV of the crypto exchanged.

6.2 Quebec QST

Revenu Québec generally follows the federal GST/HST approach for QST, treating cryptocurrency trading as a financial service exempt from QST. Businesses accepting crypto for taxable sales must still collect QST on the underlying supply, calculated based on the CAD FMV of the cryptocurrency received.

💡 Practical QST Tip for Quebec Businesses

If your business accepts Bitcoin or other cryptocurrencies as payment, you must still collect and remit QST based on the fair market value of the goods or services sold. The fact that payment was made in crypto rather than CAD does not eliminate the QST obligation.

7. Record-Keeping Requirements

The CRA requires taxpayers to keep records supporting all tax positions for a minimum of six years from the end of the tax year to which they relate. For cryptocurrency, this means:

•       Date of every transaction (buy, sell, exchange, gift, receipt of income)

•       Type and amount of cryptocurrency involved

•       Fair market value in Canadian dollars at the time of each transaction

•       Transaction fees paid (in crypto or CAD)

•       Exchange or platform name where transaction occurred

•       Wallet addresses involved

•       The purpose of each transaction (investment, business, personal use)

These records must be maintained even if transactions occurred on foreign exchanges or DeFi protocols not based in Canada. The CRA has stated that inadequate records may result in assessments based on best estimates — which are rarely in the taxpayer's favour.

⚠️  Foreign Asset Reporting — T1135

Canadian residents holding cryptocurrency on foreign exchanges or in foreign wallets may be required to file the T1135 Foreign Income Verification Statement if the total cost of foreign-held property exceeds $100,000 CAD at any point during the year. The penalty structure for non-filing is: (1) Basic: $25/day up to $2,500; (2) Gross negligence: $500/month up to a maximum of $12,000; (3) After a CRA demand to file with gross negligence: $1,000/month up to $24,000; (4) After 24+ months of continued failure: an additional 5% of the cost of the unreported foreign property. These penalties are cumulative and can be severe.

8. CRA Enforcement and Audit Activity

The CRA has significantly increased its enforcement activity around cryptocurrency. Key developments include:

•       The CRA has formally requested and received transaction data from Canadian crypto exchanges, including Coinsquare and others, covering millions of transactions.

•       The CRA's Offshore Compliance Division actively monitors crypto activity, particularly for high-value accounts.

•       Voluntary Disclosure Program (VDP): Taxpayers who have not reported crypto income in prior years may still come forward voluntarily to correct their tax returns with reduced penalties. This window closes once a CRA audit begins.

•       The Underused Housing Tax and various information-sharing agreements mean the CRA increasingly has access to financial data it did not have before.

Non-compliance carries severe consequences: reassessment of back taxes, interest compounding from the original due date, penalties of 50% of underreported taxes for gross negligence, and criminal prosecution for tax evasion in egregious cases.

9. Tax Planning Strategies for Crypto Investors

Strategic tax planning — done proactively and within the law — can meaningfully reduce the tax burden on cryptocurrency gains.

9.1 Tax-Loss Harvesting

Selling positions at a loss before year-end to offset realized capital gains. Unlike the U.S., Canada does not have a 'wash sale' rule — however, the CRA's superficial loss rules apply if you repurchase the same or identical crypto within 30 days before or after the sale.

9.2 Optimal Timing of Dispositions

If you expect to be in a lower income tax bracket next year (e.g., retiring, parental leave, business downturn), deferring the realization of gains to the following tax year can reduce the combined marginal rate applied to those gains.

9.3 Holding Crypto in a TFSA or RRSP

Cryptocurrency cannot be directly held in a TFSA or RRSP. Under the Income Tax Act, registered accounts are restricted to 'qualified investments' (listed securities, GICs, bonds, etc.), and cryptocurrency does not meet the definition of a qualified investment. Holding crypto directly in a registered account would make it a 'non-qualified investment,' triggering a 50% tax on its fair market value. Note: this is a 'non-qualified investment' issue, not the same as a 'prohibited investment' (a distinct category under the ITA). However, investors can gain indirect exposure through:

•       Publicly traded Bitcoin ETFs (e.g., Purpose Bitcoin ETF — BTCC, CI Galaxy Bitcoin ETF — BTCX) — these can be held in TFSAs and RRSPs.

•       Canadian gold and crypto ETFs on the TSX provide registered account-eligible exposure.

💡 TFSA Crypto Strategy

While direct crypto cannot be held in a TFSA, investing in a Bitcoin ETF within your TFSA means all gains are completely tax-free — including the 50%+ gains that crypto can generate. This can represent significant tax savings for long-term holders.

9.4 Charitable Donations of Cryptocurrency

Donating appreciated cryptocurrency directly to a registered Canadian charity can be highly tax-efficient. Under the ITA, donations of publicly listed securities to registered charities are exempt from capital gains tax. As of the current CRA guidance, cryptocurrency listed on a designated stock exchange may qualify — but this requires careful analysis case by case.

9.5 Income Splitting Considerations

Attribution rules prevent simple income splitting in most cases. However, adult children and spouses in lower tax brackets may have legitimate investment activities in their own name, potentially at lower marginal rates. Family holding structures should be reviewed with a CPA before implementation.

10. How N&R CPA Can Help

At N&R CPA, we work with individual investors, active traders, DeFi participants, and businesses navigating the complex world of cryptocurrency taxation. Our cloud-based, paperless practice means we can seamlessly integrate with your digital asset records, exchange statements, and crypto tax software outputs.

Service	What We Do
Crypto Tax Return Preparation	Accurate T1/TP-1 returns with proper Schedule 3/TP-274 reporting, all transactions reconciled
ACB Calculation & Reconciliation	Build or verify your ACB schedule across all wallets and exchanges using CRA-compliant average cost method
CRA & Revenu Québec Audit Support	Represent you before tax authorities, prepare documentation, and negotiate on your behalf
Voluntary Disclosure (VDP)	Help taxpayers with unreported crypto income come forward proactively to minimize penalties
Business & Corporate Crypto Planning	Assess optimal structure (personal vs. corporate) for your crypto activities, with full tax modeling
T1135 Foreign Asset Reporting	Review and file required foreign asset disclosures for crypto held on foreign exchanges
DeFi & Mining Bookkeeping	Set up proper accounting systems for commercial mining operations and DeFi activity tracking

With over 10 years serving the greater Montreal and Laval community, N&R CPA combines technical tax expertise with a commitment to proactive, strategic advice — not just compliance. We stay current on CRA and Revenu Québec guidance so you don't have to.

Ready to Get Your Crypto Taxes Right?

Contact N&R CPA for a confidential consultation. We serve clients across Quebec and Canada.

www.nrcpa.ca  |  connect@nrcpa.ca  | 

Disclaimer: This article is intended for general information purposes only and does not constitute professional tax, legal, or financial advice. Tax rules are complex, subject to change, and depend on individual circumstances. Always consult a qualified Chartered Professional Accountant before making decisions based on this content. All figures and rates are based on 2024 tax year data and proposed legislation as of early 2025.