A crypto tax lawyer's guide to how cryptocurrency is actually taxed in Canada, why there is no single crypto tax rate, and what determines how much of your gain you keep. If you have bought, sold, traded, or spent cryptocurrency, the real question is rarely just whether crypto is taxable. It is how much you will actually owe. Even though many Canadians search for a “crypto tax rate," expecting a single percentage, there isn’t one. Canada does not tax cryptocurrency at its own rate. Instead, your crypto gains are added to your income and taxed at your regular marginal rates, and how much of the gain is taxable depends on whether it is a capital gain or business income. Below is a brief guide on the tax applied to crypto gains. There is no separate crypto tax rate The Canada Revenue Agency (the "CRA") treats cryptocurrency as a commodity, not as its own asset class with its own schedule of rates (see the CRA's "Information for crypto-asset users and tax professionals"). When you dispose of cryptocurrency at a profit, that profit is folded into your taxable income for the year and taxed at the same graduated rates as your salary, business income, or interest. So the real question is not "what is the crypto tax rate?" but rather "how much of my crypto gain is taxable, and what marginal rate applies to me?" A disposition, under subsection 248(1) of the Income Tax Act (the "Act"), includes selling crypto for dollars, trading one coin for another, and using crypto to pay for goods or services. Your marginal rate is what actually applies Canada's income tax is progressive. Federal rates for 2025 run from 14.5% on the lowest bracket up to 33% on income above roughly $253,000, and each province adds its own rates on top. Combined top marginal rates range from about 44% to 54% depending on the province. Your crypto gain is taxed at whatever marginal rate it falls into, and a large gain can be taxed partly at one rate and partly at a higher one as it stacks on top of your other income. The 50% capital gains inclusion rate If your crypto profit is a capital gain, only one-half of it is taxable. This is the capital gains inclusion rate, set at 50% under paragraph 38(a) of the Act. The taxable half is added to your income while the other half is not taxed at all. For example, a $40,000 capital gain means $20,000 is added to your income. At a 45% marginal rate, you would owe about $9,000, an effective rate of roughly 22.5% on the full gain. It’s important to note that the capital gains inclusion rate is still 50%. In 2024, the federal government proposed increasing the inclusion rate to two-thirds, but this proposal was later on March 21, 2025. Therefore, the inclusion rate remains 50%. Business income is taxed in full If the CRA characterizes your crypto activity as a business, for example frequent day-trading, or mining or staking on a commercial scale, then 100% of your profit is taxable, not 50%. There is no inclusion-rate discount on business income. The CRA’s definition of "business" is when the activity reaches "an adventure or concern in the nature of trade." The CRA weighs all of the following factors to make this determination: the frequency and volume of trading, the time and effort involved, financing, and intention to profit. Business income is taxed at your full marginal rate, though you can generally deduct related expenses and apply business losses against other income. The line between investor and trader is fact-specific, and the CRA can recharacterize what you reported. Because business income effectively doubles the taxable portion of a gain, getting this classification right is often the single biggest lever on your effective rate. If the CRA challenges how you reported a gain, our Cryptocurrency Tax Audit service can help. Mining, staking, and other crypto income As opposed to gains made from buying and selling crypto, which can be either capital gains or business income, crypto earned from mining, staking rewards, airdrops, or as payment for goods or services is generally classified as business income when received, valued in Canadian dollars at its fair market value on that date. A later disposition of that crypto can then trigger a separate capital gain or loss, or receipt of business income. In each case the rate that applies is, again, your marginal rate, and the inclusion will depend on whether you’re seen to be carrying on “adventure or concern in the nature of trade.” Notably, mining or staking carried on commercially will likely cause the later sales of the crypto to be treated as business income. What actually determines your effective rate Put together, your effective crypto tax rate depends on three things: whether the gain is capital or business, how large it is and which marginal brackets it lands in, and your province of residence. Two people with the same $50,000 gain can pay very different amounts of tax. Ultimately, you can still reduce your tax burden through diligent planning, timing dispositions, harvesting losses within the rules, and correctly classifying activity. How the gain is calculated Your gain is your proceeds minus your adjusted cost base (ACB) minus any outlays. The ACB is generally what you paid to acquire the crypto, including fees, measured in Canadian dollars at the time. Because Canadians often buy the same coin at many different prices, the ACB is a weighted average across all units of that coin and is recalculated with each purchase. Every transaction must be valued in Canadian dollars at its fair market value on the date it happened. How and where you report it Capital gains are reported on Schedule 3 of your T1 return. Business income is reported on Form T2125. If you are carrying on a crypto business or are paid in crypto for goods and services GST/HST can also apply, which carries its own set of reporting and filing requirements. Ensure to keep thorough records of dates, values in Canadian dollars, wallet addresses, exchange statements, and the purpose of each transaction. Crypto tax software can help reconcile activity across wallets and exchanges, but the legal responsibility to report correctly is yours. What happens if you get it wrong The CRA has become far more active on with crypto auditing. The CRA has multiple tools to accomplish this. It uses blockchain-analytics tools and, when necessary, has used the Federal Court to compel Canadian exchanges to hand over customer records. Furthermore, Canada has committed to the OECD's Crypto-Asset Reporting Framework (CARF), with international information-sharing expected around 2027. This means that even transactions done on foreign exchanges could be shared with the CRA, if the foreign jurisdiction has signed the OECD’s agreement. For more on this topic, refer to the linked article for a breakdown of the incoming CARF regime. If you have unreported crypto from prior years, the risk of an audit and its consequences grows over time. Unreported income can attract gross negligence penalties of up to 50% of the tax owing under subsection 163(2) of the Act, and, in serious cases, prosecution for tax evasion under section 239. If you have unreported crypto from prior years, the Voluntary Disclosures Program may let you correct your filings and reduce or eliminate penalties, but generally only if you come forward before the CRA contacts you. How we can help Solstice Law helps Canadian crypto holders understand and plan for their actual tax exposure, classify activity correctly, and respond if the CRA challenges how a gain was reported. Book a free consultation to discuss your situation. This article is general information, not legal or tax advice. Your situation is unique, so please contact us to discuss the specifics.

A crypto tax lawyer's look at the mistakes and grey areas that most often land Canadian crypto holders in trouble with the CRA, and how to handle them. Cryptocurrency tax in Canada is deceptively complex. Unlike returns or gains on other investments (stock, for example) that get reported to the CRA through brokers, the reporting burden falls entirely on the holder of that cryptocurrency. This burden, combined with the ever-evolving landscape of Canadian tax law, means that even careful investors can struggle with their reporting obligations. Below are some of the crypto tax challenges we see most often, why they matter, and what to do about them. Assuming tax only applies when you cash out to dollars The most common, and most expensive, mistake is believing tax is only owed when you convert crypto to Canadian dollars. Under subsection 248(1) of the Income Tax Act (the "Act"), a "disposition" includes trading one cryptocurrency for another, using crypto to buy goods or services, and gifting it, not just selling for fiat. Yes, conversions of BTC to ETH, USDC, or any other cryptocurrency are seen as taxable dispositions. The CRA treats a crypto-to-crypto trade as a barter transaction: you are treated as having sold the first coin at its fair market value in Canadian dollars, which can produce a taxable gain even though no dollars ever reach your bank account. Active traders can accumulate hundreds of taxable dispositions in a year without realizing it. The CRA expects you to report each disposition in Canadian dollars, using the fair market value at the time of the transaction, and to track the adjusted cost base (ACB) of your holdings. With activity spread across multiple exchanges, wallets, and DeFi protocols, some of which close, delist, or lose your history, reconstructing an accurate cost base years later can be extremely difficult. Poor records are one of the biggest sources of CRA disputes, because the CRA can assess based on its own assumptions if you cannot substantiate your numbers. Keep transaction dates, Canadian-dollar values, wallet addresses, and the purpose of each transaction, and reconcile regularly rather than at filing time. Getting capital versus business income wrong Whether your gains are on capital account, where one-half is taxable under paragraph 38(a), or business income, which is fully taxable, depends on the facts, and the line is not always clear. The CRA’s definition of "business" is when the activity reaches "an adventure or concern in the nature of trade." The CRA weighs all of the following factors to make this determination: the frequency and volume of trading, the time and effort involved, financing, and intention to profit. If you report incorrectly, such as by reporting frequent, high-volume trading as capital gains rather than business income, or misreporting mining and staking, can lead to audits and corresponding reassessments, which can carry costly penalties and interest. Getting the characterization wrong in either direction is costly. Our Cryptocurrency Tax Planning service can help you get it right before you file. Overlooking mining, staking, airdrops, and DeFi Many holders report their trading gains but forget that crypto they earned, through mining, staking rewards, airdrops, or DeFi yield, can be income when received, valued in Canadian dollars at that time, with the later sale triggering an additional, separate capital gain or loss. Treating "earned" income as invisible until you sell is a risky error, but this is where reporting most often falls short. Underestimating what the CRA can see Crypto's pseudonymity creates a false sense of privacy, but the CRA can find your crypto transactions and subsequently tax you on them. The CRA has multiple tools to accomplish this. It uses blockchain-analytics tools and, when necessary, has used the Federal Court to compel Canadian exchanges to hand over customer records. Furthermore, Canada has committed to the OECD's Crypto-Asset Reporting Framework (CARF), with international information-sharing expected around 2027. This means that even transactions done on foreign exchanges could be shared with the CRA, if the foreign jurisdiction has signed the OECD’s agreement. For more on this topic, refer to the linked article for a breakdown of the incoming CARF regime. If you have unreported crypto from prior years, the risk of an audit and its consequences grows over time. Unreported income can attract gross negligence penalties of up to 50% of the tax owing under subsection 163(2) of the Act, and, in serious cases, prosecution for tax evasion under section 239. Waiting until the CRA contacts you The Voluntary Disclosures Program can allow you to correct past filings and reduce or eliminate penalties, but generally only if you come forward before the CRA contacts you. Once an audit or enquiry begins, that door usually closes. If you are behind on crypto reporting, acting early is almost always cheaper than waiting. Getting ahead of the problem Most crypto tax challenges are manageable with good records and the right advice. If you are facing an audit, are behind on filings, or are simply unsure how your activity should be reported, our team can help. Book a free consultation to discuss your options. This article is general information, not legal or tax advice. Your situation is unique, so please contact us to discuss the specifics.

For Canadian crypto exchanges, OTC desks, brokerages, ATM operators, investors, and traders, 2026 is a year worth paying attention to. This is the year Canada has proposed as the start of mandatory annual reporting under the OECD’s Crypto-Asset Reporting Framework (CARF), subject to enabling legislation being enacted. Under CARF, crypto intermediaries collect verified identity and transaction data from every user and report it to their domestic tax authority. Those authorities then exchange that data automatically with the CRA. The practical effect is straightforward. Crypto activity that was previously difficult for the CRA to see systematically, including transactions on foreign platforms, crypto-to-crypto swaps, and transfers to self-custody wallets, becomes part of a structured annual record flowing directly to Canadian tax authorities. For operators, that means compliance infrastructure needs to exist before the first reporting year begins. For investors and traders, it means the window to address past non-compliance is tied to a proposed timeline that is already moving. Neither of those problems gets easier to solve the longer they sit. The CRA Is Getting a New Set of Eyes CARF does not change what is taxable. It changes what the CRA can see. The existing tools that exposed offshore banking had no reach into crypto. CARF is the upgrade. Developed by the OECD together with G20 countries and finalized between 2022 and 2023, it requires crypto intermediaries to collect verified identity and transaction data from every user and report that data to their domestic tax authority annually. Those tax authorities then transmit the data automatically to the tax authorities of every other participating jurisdiction. The Common Reporting Standard applies to traditional financial assets and fiat currencies held in accounts with financial institutions. Crypto-assets held in wallets or on exchanges fall outside CRS scope in most circumstances. CARF closes that gap, covering the intermediaries, transaction types, and asset classes the CRS was never designed to reach. The framework runs on three interlocking components: Component What It Is What It Does Rules & Commentary Model domestic legislation Each participating jurisdiction transposes into local law; establishes who reports, what, and how Multilateral Competent Authority Agreement (MCAA) Treaty instrument Activates automatic annual cross-border data exchange between tax authorities XML Schema Standardized electronic format Makes exchange machine-readable and automated at scale Under the MCAA framework, a jurisdiction’s first reporting year is the year it notifies other competent authorities that it has implementing legislation in place. The nine-month transmission timeline in the MCAA then produces a data exchange approximately nine months after the close of that calendar year. Canada’s actual first reporting year depends on when Canada enacts the required legislation and provides that notification. No Canadian statute or notification has been confirmed at the time of publication. If You Move Crypto for Customers, You Report CARF targets a defined class of businesses, and the definition is deliberately broad. A Reporting Crypto-Asset Service Provider (RCASP) is any individual or entity that, as a business, provides a service effectuating exchange transactions in relevant crypto-assets for or on behalf of customers, whether acting as counterparty, intermediary, or by making available a trading platform. In the Canadian market, the following business models fall within that definition: · Centralized exchanges operating order books or acting as counterparty to trades · OTC desks and crypto brokers facilitating transactions for customers · Crypto ATM operators · Any platform making available a trading interface where customers execute crypto-to-crypto or crypto-to-fiat transactions The following fall outside the RCASP definition: · Pure validators and miners who do not effectuate exchange transactions for customers · Investment funds trading for their own account without offering exchange services to investors · Software developers who do not themselves provide exchange services · Bulletin board or price-posting services facilitating information flow rather than transaction execution Canadian operators already registered with FINTRAC will find much of the identity-collection infrastructure familiar. The new build is transaction-level classification and annual reporting, not KYC from scratch. The heavier adjustment falls on foreign platforms that have not operated under equivalent requirements, and on the investors who used them. Jurisdiction is determined by where a business actually operates, not where it is incorporated. A provider becomes subject to CARF obligations in any jurisdiction where it is tax resident, incorporated and carrying tax filing obligations, managed from, maintaining a regular place of business, or operating a branch. A business incorporated in one jurisdiction but operated and managed from another may carry CARF obligations in the jurisdiction where it is actually managed. Under the MCAA, a foreign exchange operating in any jurisdiction that has enacted CARF and entered an exchange agreement with Canada becomes subject to equivalent reporting obligations in that jurisdiction. The data that platform collects flows to the CRA subject to three conditions: the platform has nexus in a CARF-adopting jurisdiction, that jurisdiction has enacted the Rules, and an exchange agreement between that jurisdiction and Canada is in effect. Canadian investors and traders who have transacted on foreign exchanges under the assumption that foreign-platform activity is outside the CRA’s view are exposed, to the extent those platforms operate in participating jurisdictions with active exchange agreements with Canada. The Data Is More Detailed Than Most People Expect The data CARF delivers is comprehensive, structured, and annual. Three categories of transactions trigger reporting: · Exchanges between relevant crypto-assets and fiat currencies · Exchanges between one or more forms of relevant crypto-assets · Transfers of relevant crypto-assets Reporting is organized by asset type, with inbound and outbound flows distinguished and crypto-to-fiat and crypto-to-crypto activity broken out separately. For each reportable user, the RCASP files the following with the relevant tax authority each year: Data Point Full legal name, residence address, date of birth, place of birth (where domestic law requires), and all jurisdictions of tax residence Tax identification number for each reportable jurisdiction Aggregate gross amount, unit count, and transaction count — crypto-to-fiat acquisitions Aggregate gross amount, unit count, and transaction count — crypto-to-fiat disposals Aggregate fair market value in fiat, unit count, and transaction count — crypto-to-crypto acquisitions Aggregate fair market value in fiat, unit count, and transaction count — crypto-to-crypto disposals Inbound and outbound transfers by type where known, including airdrops, staking income, and loan receipts Aggregate fair market value and unit count of transfers to unhosted wallet addresses Two mechanics within that data set deserve specific attention. Moving assets to a self-custody wallet does not remove them from the reporting record. When a user transfers assets from a platform to an unhosted wallet, the RCASP must report the aggregate fair market value and unit count of those transfers, even without knowing who controls the destination address. Tax authorities can then use existing exchange-of-information channels to request detailed wallet-level data where compliance concerns arise. Off-platform does not mean off-record. Every crypto-to-crypto swap generates two reportable events, not one. Each swap is treated as a disposal of the outgoing asset, valued in fiat at the time of disposal, and an acquisition of the incoming asset, valued in fiat at the time of acquisition. Investors and traders whose own records do not reflect each swap in that format will face a reconciliation gap against the exchange’s annual filing. Most Stablecoins Do Not Get a Pass Most stablecoins are in scope for CARF, and the default rule is inclusion. A stablecoin is excluded only if it qualifies as a Specified Electronic Money Product (SEMP), and qualification requires satisfying all five statutory criteria simultaneously: # Criterion Practical Trap (a) Represents a single fiat currency Multi-currency stablecoins fail here (b) Issued on receipt of funds for payment purposes (c) Represents a claim on the issuer denominated in that same fiat currency (d) Accepted in payment by persons other than the issuer (e) Redeemable at par value at any time as a matter of regulatory requirement imposed on the issuer Unregulated stablecoins fail here Criterion (e) is where most stablecoins will fail. Redemption at par must be a regulatory requirement imposed on the issuer, not a commercial practice or contractual commitment. A stablecoin that pegs to a fiat currency but operates outside any framework imposing that obligation as a matter of regulation does not satisfy the criterion, regardless of how it is marketed. The distinction is narrower than it sounds. A USD-pegged stablecoin issued outside a regulatory framework mandating par redemption fails criterion (e) even where the issuer redeems at par in practice and has never failed to do so. Issuers operating under a framework that imposes redemption as a regulatory obligation — including issuers regulated under Canada’s new Stablecoin Act — are the narrower class. An RCASP must positively determine that an asset qualifies for exclusion. Without that determination, the asset is in scope. Qualifying SEMPs and Central Bank Digital Currencies are addressed under the amended Common Reporting Standard rather than CARF, as reporting on those assets is ensured under the CRS in respect of amounts held in Financial Accounts. DeFi: The On and Off-Ramps Are Already Monitored Purely decentralized protocols with no identifiable operator fall outside CARF’s current scope. The OECD has explicitly acknowledged that decentralized finance will require further technical work and potentially future amendments to address adequately. That acknowledgment is not a compliance carve-out. Where an entity exercises sufficient control over a decentralized platform such that it could in practice fulfill the due diligence and reporting obligations, that entity falls within the RCASP definition. Entities that mischaracterize their degree of control to avoid that classification attract specific anti-circumvention rules. The classification test is functional, not formal. For most DeFi users, the centralized on-ramp and off-ramp are already fully captured. The aggregate reporting obligation for transfers to unhosted wallets applies regardless of what the user does with those assets afterward. A user who moves assets from a platform to a self-custody wallet and then deploys them into a DeFi protocol has generated a reporting event at the platform: the transfer out is documented, and the fiat value at the time of transfer is on record. The absence of a CARF filing from the protocol itself does not create a gap. The gap was closed at the exchange. Build It Before the First Reporting Year or Remediate Under Pressure Operators that underestimate the lead time required will find themselves remediating under pressure once enabling legislation is in force. The core obligations are not optional enhancements. They are baseline requirements that need to be built, tested, and operational before the first reporting year begins. The main obligations are these: Obligation What Is Required Asset classification Classify every crypto-asset offered or traded against the relevant crypto-asset definition. Exclusion requires a positive determination. Default is inclusion. User self-certifications Collect a signed, dated self-certification from every user: at account opening for new users; within 12 months of the rules taking effect for pre-existing users. Required content: full legal name, residence address, all jurisdictions of tax residence, TIN for each reportable jurisdiction, and date of birth. Where the self-certification conflicts with the platform’s AML file, it cannot be relied upon. Annual reporting File an annual return per reportable user, organized by crypto-asset type and transaction category, covering the full data set above. Record retention Retain all due diligence documentation and data for a minimum of five years after the close of the reporting period. Delegated due diligence A provider that engages a third party to carry out due diligence functions remains legally responsible for those obligations. Delegation does not transfer liability. Platforms that have not yet mapped their user bases against CARF due diligence requirements, reviewed asset classification processes for every listed asset, or assessed what their annual reporting infrastructure needs to produce have material work ahead before the first reporting year begins. Investors and Traders: Your Records Are About to Be Tested The most urgent and underappreciated risk under CARF falls to investors and traders, not operators. Once CARF data begins reaching the CRA, covering the first calendar year for which Canada has implementing legislation in place, the CRA will hold a structured, platform-generated annual record of each Canadian user’s crypto transactions across every RCASP in every participating jurisdiction with an active exchange agreement with Canada. Where an investor or trader’s own records do not reflect that same activity, the discrepancy can become a basis for CRA inquiry. Accurate personal records become the only documentation available to counter what the exchange has already filed. The risk compounds for those with unreported activity on foreign platforms, and the mechanism is worth stating precisely. Under Canada’s Voluntary Disclosures Program, a taxpayer can correct past non-compliance before the CRA takes certain enforcement actions. Once an audit or enforcement action commences against the taxpayer, VDP relief is no longer available. The CRA holding data is not itself disqualifying. Taxpayers routinely disclose unreported income the CRA could have discovered from the other side of the transaction — bank records, purchaser filings — and those disclosures are accepted. CARF does not automatically bar a disclosure. It gives the CRA the information to open the audits that will. Under the MCAA, the nine-month transmission timeline means that once a jurisdiction’s first reporting year closes, the data flows to the CRA within nine months. Those with unreported foreign-platform activity, who may have been relatively free from CRA scrutiny until now, are running out of time to disclose on their own terms and on the more favourable footing the VDP provides. Two Laws, One Architecture CARF does not arrive in isolation. In the same legislative cycle, Canada enacted the Stablecoin Act as Division 45, Part 5 of the Budget Implementation Act, 2025, the country’s first federal prudential framework for stablecoin issuers. The two frameworks are complementary rather than overlapping: Stablecoin Act (BIA 2025, Division 45, Part 5) CARF Level of operation Product level Transaction level What it governs What a Canadian stablecoin is and how issuers must behave How crypto activity is reported to tax authorities Who it targets Stablecoin issuers All RCASPs and their users Key requirements Capital adequacy, reserve obligations, governance standards, yield prohibition Identity collection, annual transaction reporting, record retention Administered by Bank of Canada CRA (via automatic data exchange) One framework governs the instrument. The other governs the activity. Together, the Stablecoin Act and CARF mark the end of the period in which Canadian crypto markets operated without a comprehensive federal framework addressing both product integrity and tax transparency. The CRA Is Levelling Up CARF does not change the CRA’s enforcement posture. What it does is eliminate the structural information deficit that has constrained the CRA’s reach, particularly with respect to foreign-platform activity. The enforcement infrastructure was already in place. What it lacked was data: Existing CRA Tool Current Coverage What CARF Adds FINTRAC registration / KYC Canadian-registered exchanges Foreign platforms in participating jurisdictions captured automatically Unnamed persons requirements Court-ordered data production from specific Canadian exchanges Automatic annual data, no court order required J5 coordination Cross-border blockchain analytics with US, UK, Australia, Netherlands Structured platform-reported transaction data to cross-reference against on-chain activity Banking trail analysis CAD deposits and withdrawals to and from crypto accounts Full transaction-level crypto data from foreign platforms CARF is the unlock. When the data pipeline activates, the CRA moves from a regulator that could see fragments of the picture to one that holds a systematic, annual, structured record of Canadian crypto users’ activity across every participating jurisdiction. The tools were already loaded. CARF gives them ammunition. The answer to the question in the title of this article is yes. For Canadian crypto exchanges, OTC desks, brokerages, ATM operators, investors, and traders, the time to act is before that answer becomes self-evident to the CRA. Solstice Law works with Canadian crypto businesses and investors on CARF compliance, regulatory positioning, and crypto tax exposure. If CARF raises questions about your business or your filing position, contact us before the pipeline activates. Get in Touch → solsticelaw.io/contact Written by Anish Kamboj (Founder and Principal, Solstice Law), Jonathan Buckle (Crypto Regulatory and Tax Associate, Solstice Law), and Mattheus Lawford (Associate, Solstice Law). This article is general information, not legal advice. For guidance on your specific situation, contact us directly.

A crypto tax lawyer's guide to how the Canada Revenue Agency taxes cryptocurrency, how much you actually pay, and how the number is built. If you have bought, sold, traded, or spent cryptocurrency, the real question is rarely just whether crypto is taxable. It is how much you will actually owe. There is no single crypto tax in Canada. What you pay depends on how the Canada Revenue Agency (the "CRA") characterizes your activity, how much you gained, and your marginal tax rate. Here is how the number is actually built. Crypto is taxed as a commodity, not as money The CRA treats cryptocurrency as a commodity, not as currency, for income tax purposes (see the CRA's "Information for crypto-asset users and tax professionals"). Because crypto is treated as property, every time you dispose of it you may trigger a tax event. Under subsection 248(1) of the Income Tax Act (the "Act"), a "disposition" includes selling crypto for Canadian dollars, trading one cryptocurrency for another, using crypto to buy goods or services, and gifting it. Buying and holding crypto, or moving it between your own wallets, is not a disposition and does not by itself trigger tax. The first question: capital gain or business income? How much you pay turns almost entirely on this classification, because the two are taxed very differently. If your profit is a capital gain, only one-half of it is taxable: paragraph 38(a) of the Act sets the capital gains inclusion rate at 50%. That taxable half is added to your income and taxed at your marginal rate. If your profit is business income, 100% of it is taxable and added to your income at your marginal rate. The difference is large. The same $20,000 profit produces $10,000 of taxable income as a capital gain, but $20,000 as business income, potentially doubling the tax on the same trade. The CRA looks at the substance of your activity, not the label you choose. Its cryptocurrency guide weighs factors such as the frequency and volume of your transactions, whether you carry on the activity in a commercial and businesslike way, whether you promote a product or service, your intention to make a profit, and your overall pattern of activity. Frequent, high-volume trading, and mining or staking on a commercial scale, tends toward business income. A buy-and-hold investor is more likely on capital account. The Act defines "business" to include "an adventure or concern in the nature of trade" (s. 248(1)), so even an isolated speculative transaction can be business income if the facts support it. If you want the treatment settled before you file, our Cryptocurrency Tax Planning service can help. A note on the 50% inclusion rate The federal government proposed raising the capital gains inclusion rate to two-thirds in 2024, deferred it, and then cancelled the increase on March 21, 2025. For the 2025 and 2026 tax years, the inclusion rate remains 50%. So how much will you actually pay? Canada has no flat crypto tax rate. Your crypto income is stacked on top of your other income and taxed at your combined federal and provincial marginal rate, which runs from roughly 20% at lower income levels to about 44% to 54% at the top, depending on your province. Consider an illustrative example. Suppose you bought Ethereum for $10,000, which is your adjusted cost base, and later traded it for another token when it was worth $30,000. You have a $20,000 gain. If it is a capital gain, $10,000 is taxable, and at a 40% marginal rate you would owe roughly $4,000. If it is business income, the full $20,000 is taxable, and at the same 40% rate you would owe roughly $8,000. Same trade, double the tax. That is why classification matters so much. Losses follow the classification too. Capital losses can only offset capital gains, carried back up to three years or forward indefinitely, while business losses can generally be applied against other income. How the gain is calculated Your gain is your proceeds minus your adjusted cost base (ACB) minus any outlays. The ACB is generally what you paid to acquire the crypto, including fees, measured in Canadian dollars at the time. Because Canadians often buy the same coin at many different prices, the ACB is a weighted average across all units of that coin and is recalculated with each purchase. Every transaction must be valued in Canadian dollars at its fair market value on the date it happened. Watch the superficial loss rule: if you sell at a loss and buy the same crypto back within 30 days, the CRA can deny the loss. How and where you report it Capital gains are reported on Schedule 3 of your T1 return. Business income is reported on Form T2125. GST/HST can also apply if you are carrying on a crypto business or are paid in crypto for goods and services. Keep thorough records: dates, values in Canadian dollars, wallet addresses, exchange statements, and the purpose of each transaction. Crypto tax software can help reconcile activity across wallets and exchanges, but the legal responsibility to report correctly is yours. What happens if you get it wrong The CRA has become far more active on crypto. It has used the Federal Court to compel Canadian exchanges to hand over customer data, it uses blockchain-analytics tools, and Canada has committed to the OECD's Crypto-Asset Reporting Framework, with international information-sharing expected around 2027. Unreported or under-reported crypto income can attract arrears interest, late-filing penalties, and gross negligence penalties of up to 50% of the understated tax under subsection 163(2) of the Act. In serious cases, tax evasion under section 239 can bring fines and even imprisonment. If you have unreported crypto from prior years, the Voluntary Disclosures Program may let you correct your filings and reduce or eliminate penalties, but generally only if you come forward before the CRA contacts you. How we can help Solstice Law advises Canadian crypto investors, traders, and businesses on how their activity will be taxed, how to structure it, and how to correct past filings. Whether you are trying to understand a single large gain or years of unreported activity, we can help you get the treatment right and manage your CRA risk. Book a free consultation to discuss your situation. This article is general information, not legal or tax advice. Your situation is unique, so please contact us to discuss the specifics.

A guide to Canada’s first federal stablecoin framework, and what it means for your business. Canada’s Stablecoin Act (the “Act”) is the country’s first federal law governing stablecoin issuers. If you run a crypto exchange, OTC desk, DeFi protocol, or crypto ATM in Canada, or build software that handles stablecoins, the Act affects how you operate. Here is what the Act requires, who it covers, and what each type of participant should do now. Why Regulators Are Acting Now Stablecoins began as a means to move value between exchanges. Today, Stablecoins power cross-border payments, DeFi lending, and settlement infrastructure, with a global market cap of nearly $300 billion and daily trading volume exceeding $30 billion. That scale has pushed two concerns to the top of Canada’s agenda. Financial stability. The larger stablecoins grow, the more their reserve quality and redemption reliability matter to the wider financial system. The collapses of FTX, Celsius, Voyager, and BlockFi showed what happens when platforms hold customer funds without proper safeguards: users become unsecured creditors with little recourse. Monetary sovereignty. USDT and USDC dominate Canadian usage, yet both are issued and regulated in the United States. That is a trend the US GENIUS Act has accelerated by scaling USD-stablecoin infrastructure globally. The C.D. Howe Institute has warned that without a domestic framework, Canada risks losing oversight of its own payment flows to foreign issuers. The Stablecoin Act is Canada’s response. More may be coming from Washington. The CLARITY Act, which cleared the Senate Banking Committee in May 2026 and now awaits a full Senate floor vote, would set market-structure rules for digital assets, contains hotly contested provisions on stablecoin yield, and would bar a Federal Reserve retail CBDC. It still needs 60 votes in the Senate, reconciliation with the House, and a presidential signature, so both its odds and its final text are unsettled. If it passes, demand for US-issued stablecoins likely grows, sharpening the case for a domestic Canadian framework. Still, treat it as a signal of regulatory direction, not a fixed rulebook. Who the Act Covers An “issuer” is anyone who creates a stablecoin and makes it available for purchase, directly or indirectly, by a person in Canada (s. 2). The Act applies to Canadian and foreign issuers alike and covers both CAD- and USD-denominated stablecoins. In practice, any stablecoin accessible to Canadians online meets the threshold; there is no meaningful geographic carve-out for blockchain-based tokens. The Act does not apply to: banks and other federally regulated financial institutions (s. 12), central banks (s. 13), closed-loop stablecoins (s. 11), and non-fiat-backed tokens (which stay under provincial securities law). What the Act Requires Register with the Bank of Canada (ss. 15–17). Issuers must register before issuing any stablecoin. The application (s. 17(2)–(5)) must include corporate structure and ownership, a technology description (ledgers, smart contracts, issuance and redemption infrastructure), a redemption policy, a lawyer’s opinion on reserve, encumbrance, and custody compliance, an accountant’s statement of financial condition, governance/risk/data-security/wind-down policies, and enforcement history across AML, financial-services, and securities regulators. Requirement What it means 1:1 reserves (s. 37) Hold reserves worth at least the full face value of all stablecoins in circulation, at all times. Reserves must be the reference currency or high-quality liquid assets. Government of Canada T-bills and insured deposits are expected to qualify; commercial paper will not. The eligible-asset list awaits regulations, and existing custodial arrangements may need restructuring. No pledging (s. 38) Reserve assets cannot be used as collateral or otherwise encumbered, except in limited circumstances set out in regulations. Segregated custody (s. 39) Reserves must sit with a qualified custodian, separate from both the issuers and the custodian’s assets, and beyond the reach of either party’s creditors in insolvency. A standard contract is unlikely to suffice; segregated custody typically requires a trust structure documented by insolvency counsel before filing. Four public policies (ss. 40–44) Governance, risk management, data security, and recovery/resolution policies must be created, maintained, and publicly disclosed. Because these policies are public, they double as commercial documents, draft them with both audiences in mind. No yield to holders (s. 32) No interest or yield of any kind, direct or indirect, in cash, digital assets, or otherwise. The issuer may earn income on reserves but cannot pass it to holders or use reserves for anything but redemption. No false claims (ss. 33–34) A stablecoin cannot be marketed as legal tender, a bank deposit, or government-insured. Ongoing reporting (s. 46) Monthly certified accountant’s statement (financial condition, supply, reserve composition) plus periodic full compliance reports including a lawyer’s opinion on reserve, encumbrance, and custody. National security review (ss. 21–22, 27) The Minister of Finance can review any application on national-security grounds and direct the Bank of Canada to refuse it. 1:1 reserves (s. 37) Hold reserves worth at least the full face value of all stablecoins in circulation, at all times. Reserves must be the reference currency or high-quality liquid assets. Government of Canada T-bills and insured deposits are expected to qualify; commercial paper will not. The eligible-asset list awaits regulations, and existing custodial arrangements may need restructuring. You also need FINTRAC registration. Bank of Canada registration is not enough. Section 5 also classifies issuers as virtual-currency dealers under the PCMLTFA, requiring separate registration with FINTRAC as a money services business. These are two independent regulators with separate compliance programs, audit cycles, and enforcement powers. Registration with the Bank of Canada does not satisfy the FINTRAC requirement. Failure to register separately with FINTRAC is a violation of the PCMLTFA. The Three Stablecoins That Matter Most in Canada Right Now The Stablecoin Act received Royal Assent on March 26, 2026, but its registration and reserve obligations switch on only once regulations are finalized, which is expected in 2027. In the meantime, the CSA's interim framework under Staff Notice 21-333 already governs which stablecoins registered Canadian platforms can list. The two regimes operate independently: compliance with one does not guarantee compliance with the other. Issuer Circle Internet Financial, LLC Tether Operations Limited Tetra Trust Co. via CAD Digital Inc. Currency peg USD USD CAD CSA interim status Filed VRCA undertaking Dec. 2024. Only major stablecoin to satisfy SN 21-333. No undertaking filed. Not compliant with the CSA interim framework. Provincial approval from Alberta Treasury Board and Finance. CSA undertaking status not publicly confirmed. Reserves Regular third-party attestations; composition publicly disclosed. Subject to ongoing scrutiny based on publicly available information. 1:1 CAD reserves held in trust at Tetra Trust; attestations published. Redemption At-par policy in place. Retail redemption terms less clearly defined. At-par in CAD. Outlook under the Act Well-positioned given existing CSA compliance. Significant reserve and governance changes would be needed to comply. Depends on whether Tetra Trust qualifies for the s. 12 exclusion, which is unresolved. USDC is the only major stablecoin whose issuer has met the CSA’s interim requirements. For platforms listing stablecoins in Canada today, it is the obvious starting point. USDT is the world’s largest stablecoin by volume but has given no public sign of pursuing Canadian compliance. USDT holders should treat the stablecoin as a liability, not an asset: once the registration regime takes effect, platforms will be expected to delist stablecoins from unregistered issuers, and the CSA’s interim window is already closed to new undertakings. Listing or relying on USDT now means planning for a forced unwind later; whether issuer, platform, or holder, limiting exposure now is cheaper than unwinding operations on a regulator's timeline. CADD launched in May 2026 as the first CAD-backed stablecoin from a licensed Canadian trust company, following Alberta approval; transfers between Wealthsimple and National Bank were completed in December 2025. CADD’s status under the federal Act is unresolved, and its approval is provincial, not federal. Additionally, Stablecorp’s QCAD has also claimed CSA approval under the existing framework. Either way, CADD signals real commercial demand for a domestic CAD stablecoin. What This Means for Your Business The Act’s formal obligations rest with issuers, but its practical effects extend to every participant in the Canadian crypto ecosystem. Centralized exchanges. Every stablecoin you list must be issued by a compliant issuer: CSA SN 21-333 sets that standard today; Bank of Canada registration will be added once the registration regime takes effect. Missing either deadline puts your listings offside. Both timelines need tracking. • Audit issuer registration status for every listed stablecoin. • Delist stablecoins from issuers who fail to register. • Note: the CSA closed its SN 21-333 undertaking window to issuers distributing in Canada after February 2023, so the compliant list is effectively fixed until the new regime takes effect. • Expect layered oversight from the CSA, CIRO, and potentially the Bank of Canada for payment-related functions. DEXs and DeFi protocols. The Act does not ban DeFi lending or liquidity pools. But Canadian-connected participants, front-end operators, validators, and developers, should assess where they sit. The s. 2 issuer definition is the outer edge of the risk, not the obvious default: in most cases, a front-end or wallet is more likely caught by the parallel Retail Payment Activities Act amendments, which bring custodial wallet and payment-service providers under Bank of Canada supervision. FINTRAC registration as an MSB may also apply independently. Protocols leaning on non-compliant stablecoins as collateral may also see liquidity shrink as institutional capital shifts to registered issuers. Software developers. If your wallet, payment aggregator, or embedded-finance product is what puts a stablecoin in a Canadian user’s hands, you could fall within scope, most likely as a payment-service provider under the RPAA amendments, and at the outer edge under the s. 2 issuer definition, even if you did not create the token. This boundary has not been tested. Legal advice at the design stage costs far less than a registration problem after launch. OTC desks. PCMLTFA obligations are already in force and enforcement is active. In 2025, FINTRAC levied a record $176.9 million penalty against Vancouver-based CryptoMUS for over 2,500 violations, with sector penalties topping $200 million for the year. The 2025 Budget also raised the bar: AML programs must now be “reasonably designed, risk-based and effective,” and falling short is a “very serious” violation carrying penalties up to $4 million per instance. The Travel Rule applies to every virtual-currency transfer of $1,000 or more. Crypto ATM operators. ATM operators handling stablecoins must be FINTRAC-registered MSBs running a full AML/CTF program. FINTRAC revoked 23 crypto MSB registrations in March 2026, with more enforcement signalled by the Finance Minister. Voluntary registration now beats responding to a revocation later. Degens and HODLers. No registration falls on you, but the Act reshapes the coins you hold and trade. The upside: registered issuers must hold full 1:1 reserves and honour redemption at par, so a compliant stablecoin should actually be worth a dollar when you cash out. The trade-off: issuers cannot pay you yield, so on-chain “earn” products built on the stablecoin itself go away, and platforms will be pushed to delist non-compliant coins. The practical move is to favour stablecoins from issuers heading toward compliance, USDC today, a domestic option like CADD as it matures and treat USDT exposure as something to wind down before a platform forces the exit for you. Federal vs. Provincial: The Unresolved Gap The Act confirms that issuing a stablecoin is not “dealing in securities” under federal banking and insurance legislation (s. 3) and carves out deposit-taking liability from those same statutes (s. 4). What it does not do is displace provincial securities law. Until provincial regulators withdraw their securities classification of fiat-backed stablecoins, an issuer with Bank of Canada registration may still face provincial prospectus, dealer-registration, and continuous-disclosure obligations. No federal-provincial coordination agreement has been published. Until one is developed, participants should plan to comply with both regimes at once. The Bottom Line The Stablecoin Act gives Canada its first real framework for digital money: reserve requirements, custodial safeguards, governance standards, and ongoing reporting. The rules are not fully in force, but the direction is set, and the businesses that treat 2026 as their build year will be ready when registration opens. For anyone listing or relying on stablecoins today, USDC is the only major option already aligned with Canada’s interim regime. Start with the question that fits your business: • Exchanges: are all listed stablecoins from compliant issuers, and what is your plan when the Act takes effect? • DeFi operators and developers: does your product pull you in as a payment-service provider under the RPAA, or as an issuer under s.2? Do you need FINTRAC MSB registration? • OTC desks: does your AML program meet the “reasonably designed, risk-based and effective” standard? • ATM operators: are you FINTRAC-registered and running a compliant AML program? • Degens and HODLers: are the stablecoins you hold from issuers heading toward compliance, and what is your plan for any USDT exposure? • All participants: have you built the federal-provincial gap into your compliance plan? The framework will keep evolving as regulations and amendments are issued. The incumbents who come out ahead will be the ones preparing now, not reacting in 2027. If any of this touches your business, or your bags, reach out. Solstice Law advises crypto DeFi operators, OTC desks, Devs, Degens, HODLers, and other crypto participants on Canadian regulatory compliance and crypto tax. Happy to talk through where you stand and what to do next. Written by Anish Kamboj (Founder and Principal, Solstice Law) and Jonathan Buckle (Crypto Regulatory and Tax Associate, Solstice Law). This article is general information, not legal advice. For guidance on your specific situation, contact us directly.

A Crypto Tax Lawyer's Guide to Paying Employees in Crypto: Income Tax Classification, Withholding Requirements, and Benefits and Drawbacks As mainstream adoption of cryptocurrency becomes more prevalent, employers should develop the capacity to respond to demands for crypto compensation. Understanding how to offer cryptocurrency compensation, the income and payroll tax consequences, and the associated benefits is essential for both employees and employers. This article will explore these topics in depth. Methods to Offer Digital Currency Compensation Currently, there are two common ways to compensate employees and independent contractors in cryptocurrency. Direct Payments One option is for employers to pay their employees or independent contractors directly in cryptocurrency. This can be the full amount or a portion of their salary, wages, or other remuneration. Employers can purchase cryptocurrency through a corporate account on an exchange. Numerous exchanges are available to Canadian businesses, including WonderFi, Newton, Shakepay, and Coinbase. After purchasing cryptocurrencies, employers can transfer the amounts owed directly to the digital wallets of their employees or independent contractors. Third-Party Services The second option is for employers to use a third party. This third party receives the compensation in fiat from the employer and converts it to the designated cryptocurrency based on the employee or independent contractor’s chosen allocation. Companies like Blockrewards, one of Canada's largest bitcoin compensation operator, provide these services. The process generally involves creating an account with the service, funding a payroll account, and selecting the desired method and allocation of payment. The service will calculate the appropriate withholding and deposit the correct amount of cryptocurrency as wages to the employee, less applicable deductions. Both options are frequently utilized. If a business is considering purchasing cryptocurrency for more than just payroll needs, creating a corporate account on an exchange provides flexibility to hold, trade, and make other business transfers seamlessly. Exchanges also provide supporting documentation of transaction history, which can assist accountants with tax filing. These websites allow users to calculate their tax liability from cryptocurrency transactions by combining records from multiple platforms, generating tax reports and Schedule 3 Tax Forms to report capital gains or losses. However, if a business is only considering purchasing cryptocurrency for payroll, using a third party may be the preferred option. These services are dedicated to processing payroll in digital currencies and can reduce administrative hurdles. Income Tax Considerations Employees and Independent Contractors In Canada, many rules that apply to paying wages to employees also apply to paying remuneration in cryptocurrency. According to subsection 5(1) of the Income Tax Act (the “Act”), a taxpayer’s employment income includes “salary, wages, and other remuneration, including gratuities” received within the relevant taxation year. This provision has been interpreted broadly to capture most payments made to employees by virtue of their employment status. Employment income earned by the taxpayer is recognized in the year it is received. Therefore, if an employer pays remuneration in cryptocurrency, the fair market value of that cryptocurrency at the time it is received must be included in the taxpayer’s income for the relevant tax year. The Canada Revenue Agency (the “CRA”) has stated: "Where an employee receives digital currency as payment for salary or wages, the amount (computed in Canadian dollars) will be included in the employee’s income pursuant to subsection 5(1) of the Act.” Independent contractors may also choose to receive compensation in cryptocurrency. Unlike employees, the income earned by independent contractors is characterized as being from business or property under the Act. Generally, this characterization is preferable for independent contractors, as it allows for more favorable tax treatment for the deduction of expenses. Independent contractors can deduct certain business expenses that are not available to employees. A discussion of whether a worker is an employee or independent contractor is beyond this article's scope, but like employees, independent contractors must include cryptocurrency remuneration in their income. Additionally, paragraph 6(1)(a) of the Act states that “the value of board, lodging, and other benefits of any kind whatever received or enjoyed by the taxpayer” by virtue of their employment is generally included in the taxpayer’s income for the year the benefit is received. Thus, if an employer confers non-cash benefits, including cryptocurrency, the fair market value of the benefit must be included in the taxpayer’s income and is subject to taxation. Employers cannot make “voluntary payments” to circumvent this provision. The CRA has articulated: “Sometimes individuals receive a voluntary payment or other valuable transfer or benefit by virtue of an office or employment from an employer. In such cases, the amount of the payment or the value of the transfer or benefit is generally included in employment income pursuant to subsection 5(1) or paragraph 6(1)(a).” When an employee disposes of cryptocurrency paid by an employer, the income received will be characterized as either business income or a capital gain. This characterization is important because only one-half of a capital gain must be included in a taxpayer’s income, while all business income is subject to tax at the applicable marginal rate. The CRA considers several factors to determine whether a taxpayer dealing with cryptocurrency is engaged in business: The taxpayer carries on activity for commercial reasons and in a commercially viable way. The taxpayer undertakes activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory. The taxpayer promotes a product or service. The taxpayer shows intent to make a profit, even if unlikely in the short term. The date on which the taxpayer’s alleged business activities began. The taxpayer is engaged in an adventure of concern in the nature of trade. The Act defines “business” to include “an adventure or concern in the nature of trade.” Courts have held that an “adventure or concern in the nature of trade” may include an isolated transaction where the taxpayer buys property intending to sell it at a profit. Although a taxpayer entering into an isolated transaction will not be considered a trader, if the transaction was intended to yield a profit and was not undertaken as an investment, it would likely be considered in the nature of business. Employees receiving cryptocurrency as remuneration should aim for capital gains treatment by avoiding characterization as business income. Individual circumstances will vary, but generally, taxpayers should limit the number of transactions related to their cryptocurrency holdings, avoid trading, and hold their crypto assets for a prolonged period to be characterized as an investment. If an employee’s income from cryptocurrency is considered a capital gain, the eventual disposition will depend on the fair market value at the time of the disposition less the adjusted cost basis of the cryptocurrency. However, the initial fair market value of any cryptocurrency paid to an employee must be included in income for the year it was received. Employers From the employer’s perspective, if it pays employees in cryptocurrency, it is responsible for withholding and remitting the appropriate amount of source deductions to the Receiver General regarding employment income. Generally, these amounts will include income tax withholding, contributions to the Canada Pension Plan, and employment insurance unless a relevant exception applies. Therefore, employers must calculate the correct fair market value of any cryptocurrency paid as remuneration to ensure proper remittances to the CRA. Failure to comply with withholding and remittance requirements may result in liability for the employee’s Canadian tax and any applicable penalties. Payments and Remittances to Non-Residents A Canadian employer may wish to make payments to non-resident employees with cryptocurrency. Generally, there is no provision under the Act preventing a Canadian-resident business from distributing employment income to a non-resident. However, employers should be aware of certain tax consequences that may apply. Specifically, paragraph 153(1)(a) of the Act and section 102 of the Income Tax Regulations impose a withholding and remittance requirement on amounts paid to both resident and non-resident employees performing employment duties inside Canada. If a non-resident individual (not an employee) renders services in Canada, paragraph 153(1)(g) of the Act and subsection 105(1) of the Regulations require the payor to withhold tax on fees, commissions, and other amounts paid to non-residents. Currently, the withholding rate for these individuals is 15% of the gross amount paid. Therefore, if a Canadian employer pays non-resident employees or independent contractors in cryptocurrency for services rendered in Canada, it must withhold proper amounts and make appropriate remittances to the CRA. The tax consequences of paying non-resident employees with cryptocurrency depend largely on whether an applicable treaty exists between Canada and the non-resident's country. For instance, the Canada-U.S. Treaty provides that any remuneration exceeding $10,000 Canadian dollars paid to a non-resident for services rendered in Canada will be subject to Canadian taxation. Additionally, if payment is made by or on behalf of a Canadian resident to a non-resident employee providing services in Canada, that non-resident employee will be subject to Canadian income tax. Accordingly, the taxation regime of cryptocurrency for Canadian resident taxpayers will apply to non-resident Americans providing services in Canada under the Canada-U.S. Treaty. Subsection 200(1) of the Regulations imposes an obligation on a Canadian employer to provide a T4 slip annually to an employee captured by paragraph 153(1)(a) and to file a T4 information return annually to the CRA outlining the employee’s income and applicable deductions. Benefits and Drawbacks of Paying Cryptocurrency as Remuneration Employer Benefits In a time of increased voluntary unemployment, employers need to differentiate themselves to attract and retain talent. Offering compensation through cryptocurrencies provides a comparative advantage when hiring and retaining the best talent. Such employers can position themselves as forward-thinking by adopting this compensation method early. Employers also benefit from streamlined cross-border payments to remote or international contractors. Payments to any digital wallet, whether foreign or local, can be completed in minutes. Compared to wire transfers, digital currency payments are significantly faster, as wire transfers typically take one to five days. Moreover, cryptocurrencies operate on the Blockchain, providing a transparent and verifiable ledger. These payments can be made at any time without needing to go through a bank, and at a fraction of the cost of typical international payments, with no immediate impact from international currency exchange rates on employees. Employer Drawbacks The volatility of cryptocurrency may discourage employers from paying wages in this form. Rapid market fluctuations can add unwanted unpredictability for employers purchasing cryptocurrencies to pay employees. To mitigate this risk, employers could retain a service to pay cryptocurrency directly to employees. Employers should ensure that employees understand the potential for dramatic losses in value when receiving cryptocurrency as wages due to market volatility. Proper education on this volatility is essential for both employees and candidates to make informed compensation decisions. Employers who choose to pay employees in cryptocurrency remain responsible for remitting source deductions on employee income. Tax reporting may become more complicated when withholding and remitting source deductions for cryptocurrency wages compared to fiat currency. While services are available to assist businesses in fulfilling their reporting and tax obligations, these services may charge fees, adding costs to the process. Additionally, employers will likely need to take extra administrative steps to document the compensation scheme, including inserting an authorization to pay employee wages in cryptocurrency in relevant employment contracts. Employee/Independent Contractor Benefits The benefits of cryptocurrency have been widely discussed, and this article will highlight a few practical advantages that may entice employees to seek remuneration in cryptocurrency. First, cryptocurrency is often viewed as a long-term hedge against inflation. Its finite nature and fixed cap lead some to conclude that it is an effective tool against inflation compared to fiat currency, which can be manipulated by central banks. For example, Bitcoin has a fixed supply cap of 21 million BTC, while the CAD is subject to manipulation, leading to a significant increase in the Canadian money supply. Employees may find comfort in knowing that their cryptocurrency may serve as a hedge against inflation. Second, offering employees the opportunity to receive cryptocurrency as compensation may be particularly useful for non-resident employees or independent contractors in areas where access to bank accounts is difficult. Since cryptocurrency is generally paid directly to a digital wallet, this allows employers to bypass banks entirely. Third, paying employees in cryptocurrency allows for almost instantaneous payments. This is especially beneficial for non-resident individuals, where fiat currency remittances could take days to clear and are subject to bank rules and fees. Commercial services enable immediate distributions of cryptocurrency, helping employees pay bills or rent on time without unnecessary delays. This method also lowers barriers for individuals who might be discouraged from holding cryptocurrency. Those receiving remuneration in cryptocurrency through third-party services only need to set up a digital wallet; they do not need to trade on an exchange or make purchases independently. Finally, if employees use a cryptocurrency exchange app, transfers of cryptocurrency into fiat currency are nearly instantaneous. As previously mentioned, this transfer would likely result in a taxable disposition under Canadian income tax law. Employees should note the price at which they initially acquired the cryptocurrency to ensure that any capital gains or losses are accurately accounted for. Employee Drawbacks The most immediate concern for employees receiving wages in cryptocurrency is the rapid fluctuation in value. If an employee receives cryptocurrency when its value is high, they will receive fewer units than when its value is lower. Employees must be prepared for some degree of volatility when choosing to receive cryptocurrency as remuneration. One approach to mitigate this risk is to allocate a balance of income between cryptocurrency and fiat currency instead of receiving the entirety in cryptocurrency. Another potential disadvantage of receiving wages in cryptocurrency is the more complicated tax reporting obligations and compliance mechanisms compared to fiat currency. The CRA is increasingly aggressive in addressing non-compliance in cryptocurrency transactions. Therefore, employees receiving cryptocurrency as compensation should consider retaining accountants or tax advisors to assist with tax filings. This may add unexpected costs to receiving compensation in cryptocurrency. However, crypto accounting software is also available to individuals and can generate necessary tax forms and reports. Conclusion As cryptocurrency becomes more pervasive, employee interest in cryptocurrency remuneration will intensify. Employers should be prepared to meet these demands and understand the tax implications of compensating employees in cryptocurrency. Generally, employers have two options to pay employees in cryptocurrency: (1) open a business account with an exchange and purchase their own cryptocurrency, or (2) rely on third-party services to ease the process. It is crucial for employers to evaluate which option is most suitable for their business and the benefits and drawbacks that arise from this compensation method. Employers are encouraged to consult their tax practitioners to develop solutions that address their needs. If you have not properly reported your crypto compensation to employees or if you are an employee who has received crypto but have not reported it to the CRA, consider the Voluntary Disclosure Application. It's important to report and disclose any cryptocurrency transactions to the CRA to avoid any Tax Audits. Resources 1 Koinly, “Bitcoin Tax Calculator for Canada” online: Koinly https://koinly.io/ canada/; Sam Stone, “Cryptocurrency Taxes in Canada” (April 23, 2019) online: CoinTracker https://www.cointracker.io/blog/cryptocurrency- taxes-in-canada. 2 R.S.C. 1985, c 1 (5th Supp) [“ITA”]. 3 Ibid., at s. 5(1). 4 Canada Revenue Agency, “What You Should Know About Digital Currency” (March 17, 2015) online: Government of Canada https://www.canada.ca/ en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2013/what-you-should-know-about-digital-currency.html. 5 ITA, supra note 2 at s. 9(1). 6 Ibid., at s. 6(1)(a). 7 Canada Revenue Agency, “Income Tax Folio S3-F9-C1, Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime” (July 3, 2020), online: Government of Canada https://www.canada.ca/en/reven-ue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-prop-erty-investments-savings-plans-folio-9-miscellaneous-payments-re-ceipts/income-tax-folio-s3-f9-c1-lottery-winnings-miscellaneous-re-ceipts-income-losses-crime.html. 8 Canada Revenue Agency, “Guide for cryptocurrency users and tax professionals” online: Government of Canada https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html (last modified December 13, 2023). 9 Ibid. 10 ITA, supra note 2 at s. 248(1). 11 Jinyan Li et al., “Principles of Canadian Income Tax Law”, 9th Edition, (Thomson Reuters: Toronto), citing to: MNR v. Taylor, [1956] CTC 189, 56 DTC 1125 (Can. Ex. Ct.) and Regal Heights v. MNR, [1960] CTC 384, 60 DTC 1270 (SCC). 12 Ibid. 14 ITA, supra note 2 at s. 39(1). 15 Ibid., at s. 153(1)(a). 16 Income Tax Regulations, CRC, c. 945 at s. 102 [ITA Regs]. 17 ITA, supra note 2 at s. 153(1)(g). 18 ITA Regs, supra note 16 at s. 105(1). 19 Ibid. 20 Convention Between Canada and the United States of America With Respect to Taxes on Income and on Capital, (September 26, 1980), online: Government of Canada https://www.canada.ca/en/department-finance/ programs/tax-policy/tax-treaties/country/united-states-america-con- vention-consolidated-1980-1983-1984-1995-1997.html (Entered into force 16 August 1984) at art. XV, s. 2(a) [Canada-U.S. Treaty]. 21 Ibid., at art XV, s. 2(b). 22 ITA Regs, supra note 16 at s. 200(1).

The CRA's Guidance on NFTs The Canada Revenue Agency (CRA) and CPA Canada recently confirmed that NFT marketplaces and individuals selling NFTs may be subject to GST/HST on all their transactions. This guidance introduces a significant financial and administrative burden for many businesses. The CRA addressed whether businesses in Canada that buy and sell NFTs with revenue exceeding $30,000 should include GST/HST in all sale proceeds. This concern arises from the nature of NFT marketplaces and blockchain transactions, which are traditionally anonymous and region-agnostic. Key Conditions for GST/HST Application In response, the CRA stated that a supply of NFTs is deemed to be made in Canada and generally subject to GST/HST if: The NFT may be used, in whole or in part, in Canada. The supplier is considered a business operating in Canada. The business is not classified as a small supplier (generally an entity with revenue less than $30,000). It’s important to note that GST/HST may not apply if the supply of NFTs is exempt or zero-rated (subject to GST/HST at a rate of 0%). Certain cryptoassets, defined as virtual payment instruments, are considered exempt from GST/HST. These include Bitcoin and Ethereum. However, NFTs do not fall under this exemption category according to the CRA. Exemptions and Zero-Rated Supplies An NFT may be zero-rated if the supply is made to a non-resident who is not registered for GST/HST purposes at the time of the supply. This creates a complex situation for NFT marketplaces and individual suppliers operating in Canada. The Challenge of Anonymity The complication arises because users of NFT marketplaces often prefer anonymity. If a supplier cannot identify the recipient of the supply, their residency status, or their GST/HST registration, the CRA states that GST/HST will apply to all such NFT supplies. The CRA will assume that all purchasers of NFTs are Canadian unless there is evidence to the contrary. This CRA commentary creates a significant financial and administrative burden on businesses producing taxable supplies of NFTs in Canada that cannot identify the residency of the purchaser. Implications for Canadian Purchasers Canadian purchasers who cannot identify the supplier of the NFTs will also be unable to claim the GST/HST on their NFT purchases. This situation can lead to increased costs for buyers and sellers alike. Potential Solutions for NFT Marketplaces If you are an NFT marketplace or an individual operating a business of buying and selling NFTs, your transactions may be subject to GST/HST. Depending on the specifics of your business, there are potential solutions to this issue. Our team at Solstice Law can provide guidance tailored to your situation. Feel free to reach out for a free consultation . Conclusion The recent guidance from the CRA regarding GST/HST implications for NFT transactions in Canada is a crucial development for businesses in this space. Understanding these regulations is essential for compliance and effective business operations. As the NFT market continues to evolve, staying informed about tax obligations will be vital for success. --- This article aims to clarify the complexities surrounding GST/HST for NFT marketplaces in Canada. By addressing these concerns, businesses can better navigate the regulatory landscape and make informed decisions.

In the ever-evolving landscape where digital assets play a vital role in corporate, commercial, and financial spheres, cryptocurrency transactions have become routine. This includes situations where digital assets are used as collateral for loans or transferred through crypto lending agreements. Scenario 1: Collateral for Loans Many borrowers are eager to use their substantial digital asset holdings to secure fiat currency loans. Pledging crypto assets as collateral can unfold in various ways. When borrowing, the terms may require the individual to sign a custodial agreement. This agreement appoints a custodian who assumes possession and control of the pledged digital assets. The terms of the custodial agreement are critical. According to the Canada Revenue Agency (“ CRA ”), a disposition of assets may occur, leading to potential gains or losses for the person pledging the assets. In these agreements, custodians typically assume legal interest in the collateral. A key question arises: has a disposition occurred? This often hinges on whether the custodian has also obtained beneficial ownership. Tax Implications of Custodial Agreements Subsection 248(1) of the Income Tax Act (Canada) defines “disposition.” Under paragraph (c), it includes “any transfer of the property to a trust or, where the property is property of a trust, any transfer of the property to any beneficiary under the trust, except as provided by paragraph (f) or (k).” Here, provisions (f) and (k) offer exceptions where there is merely a change in legal ownership without any change in beneficial ownership. Generally, custodial arrangements are viewed as trust relationships. In these cases, legal title moves to the custodian while beneficial ownership remains with the borrower. [* 1]* If digital assets are pledged in this manner, there may be no disposition, since only legal ownership changes and not beneficial ownership. However, if the agreement alters beneficial ownership, it can trigger a disposition under the Act. Non-Custodial Loan Scenarios Digital assets can also serve as collateral without a custodial agreement or trust relationship. In such traditional arrangements, the pledge of securities may not count as a disposition under the Act. Per subsection 248(1), a “disposition” does not include, under paragraph (j), “any transfer of the property for the purpose only of securing a debt or a loan.” Thus, in non-custodial loan transactions, there should be no taxable disposition if beneficial ownership remains unchanged. The CRA closely examines whether transferring digital assets—under either custodial or non-custodial agreements—constitutes a tax disposition, raising significant tax questions. Scenario 2: Lending Agreements In a recent CRA roundtable, a hypothetical case was presented. A taxpayer transfers bitcoin to a centralized crypto-asset exchange and lending platform in exchange for a variable return. [2] Here, the platform, owning the bitcoin in its name, could pledge, sell, lend, or otherwise use the bitcoin as it sees fit without notifying the taxpayer. [3] As the bitcoin was not held under a custodial agreement or in trust for the taxpayer, the beneficial interest of the deposited bitcoin transferred to the exchange. Based on the facts provided, the CRA noted that a disposition likely occurred in this context. [4] The CRA did not reference a specific part of the Act but pointed to the general definition of “disposition” in subsection 248(1). This roundtable discussion may have unexpected tax implications for the taxpayer involved in the bitcoin transfer agreement. Implications of Dispositions in Crypto Lending The definition of “disposition” in subsection 248(1) complicates understanding the tax consequences of digital asset transactions. The CRA emphasized that analyzing a crypto disposition requires examining events, transactions, and all relevant contractual details. [5] The potential unintended tax consequences illustrated in these scenarios highlight the importance of thoroughly understanding lending terms. Careful record-keeping is essential in the fast-moving world of digital asset transactions. Best Practices for Navigating Crypto Lending Importance of Record-Keeping As the crypto landscape evolves, participants must track their assets carefully. Maintaining detailed records provides clarity and can protect against unanticipated tax liabilities. This diligence is not only prudent; it is increasingly necessary for compliance with emerging regulations. Evaluating Lending Arrangements Potential borrowers should scrutinize lending terms closely. Understanding the terms of any custodial agreement and assessing potential tax implications can prevent misunderstandings. Investors and borrowers should consider consulting with tax professionals specializing in cryptocurrency. The Future of Cryptocurrency Lending Schemes for utilizing digital assets in borrowing and lending are likely to grow. As regulations evolve, so will the complexity of crypto financial transactions. Staying informed about regulatory changes will be vital for participants in the digital asset space. Conclusion Unexpected consequences often accompany crypto transfers. Participants must be vigilant and exercise due diligence. The challenge of tracking crypto asset movements underlines the necessity of thorough record-keeping. In the rapidly changing market, prompt and informed decisions are critical when engaging in alternative arrangements with digital assets. ---wix--{"type":"DIVIDER","id":"ncrb58782","nodes":[],"dividerData":{"containerData":{"width":{},"alignment":"CENTER","spoiler":{},"height":{},"textWrap":false},"lineStyle":"SINGLE","width":"LARGE","alignment":"CENTER"}}--wix-- References: [1] Although not defined in the Act, the CRA describes a bare trust for income tax purposes as a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property. A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, can take no action without instructions, and only holds legal title. [2] Association de Planification Fiscale et Financière, “2 November 2023 APFF Roundtable, – Q. 10 Disposition on bitcoin transfer to platform” (November 2, 2023). [3] Ibid. [4] Ibid. [5] Ibid.

Decentralized Autonomous Organizations (“ DAOs ”) continue to grow in popularity and provide utility to their members. As of May 2023, there were approximately 13,000 DAOs with a collective total treasury of almost $32 billion. [1] However, the uncertainty in the tax treatment of DAOs and the activities of their members persists. This article will examine the Canadian tax consequences of DAOs, with particular emphasis on the activities of individual DAO members (hereinafter referred to as “ Members ”). DAOs are entities operating without a traditional hierarchal structure or centralized leadership. Decision-making and governance is determined democratically by token holders. The more tokens a Member has, the more impact their vote has on a decision. The decisions made by the Members are automatically implemented by smart contracts which operate on a set of rules programmed by a core team of developers who create the DAO. DAOs can be for-profit or non-profit entities. There are various categories of DAOs, including: Protocol DAOs; Investment DAOs; SubDAOs; Service DAOs; Social DAOs; and Philanthropy DAOs In Canada, there is no legal structure that precisely captures all the characteristics of a DAO. Depending on specific activities of the DAO, it may be a corporation, joint venture or even a partnership or trust as a flow-through entity. Internationally, there is no common approach to the classification of a DAO. Some U.S. states (including Vermont, Wyoming and Tennessee) recently enacted legislation to allow DAOs to register as a customized limited liability company [2] , while other jurisdictions, such as the Cayman Islands, have incorporated DAOs as foundation companies. [3] To achieve legal certainty and limit the liability of Members, a DAO should be carefully “wrapped” or registered as a traditional legal entity. The taxation of the DAO will depend on its business structure and the activities it undertakes. While the following analysis focuses on the activities of Members, we will elaborate on the taxation of a DAO itself in a later article. Taxable Events for Individual DAO Members [4] The activities of individual Members may be taxable events under the Income Tax Act (Canada) (the “ ITA ”) for Canadian residents. [5] According to the Canada Revenue Agency (the “ CRA ”), a capital gain exists when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base (“ ACB ”) and the outlays and expenses incurred to sell the property. [7] A capital loss exists when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property. [8] A taxpayer realizes business income rather than a capital gain when deemed to have earned income from a “profession, calling, trade or undertaking of any kind whatever” or an “adventure or concern in the nature of trade”. [9] In general, consistent and sustained activities undertaken with a view to profit will be labelled as a “business” activity within the meaning of the ITA. However, an “adventure or concern in the nature of trade” may still be captured by an isolated transaction in which a taxpayer makes a single, speculative purchase and ultimately sells the property. [10] Under these circumstances, as long as the transaction was intended to yield a profit, the transaction would likely be considered to be in the nature of business. [11] There is a litany of case law which discusses whether income should be characterized as received on account of business or capital; however, the following is a list of factors which the CRA considers indicative of carrying on a business: the taxpayer carries on the activity for commercial reasons and in a commercially viable way; the taxpayer undertakes activities in a businesslike manner, which might include preparing a business plan and acquiring capital assets or inventory; the taxpayer promotes a product or service; the taxpayer’s conduct shows that they intend to make a profit, even if they are unlikely to do so in the short term; and the taxpayer is engaged in an adventure or concern in the nature of trade. [12] The CRA has further opined that the most relevant factor it will consider when distinguishing between business and capital gains treatment is the intention of the taxpayer. [13] Ultimately, whether a DAO-related taxable event will receive capital gains treatment or business income treatment, among other possibilities, will depend on the circumstances at play. Notably, one-half of a capital gain must be included in a taxpayer’s income. Furthermore, one half of a capital loss (referred to as the allowable capital loss) may be deducted from capital gains. Capital losses may generally only be offset by capital gains, not other income. If the taxpayer does not have any capital gains against which to offset capital losses, the taxpayer can carry the net capital losses forward indefinitely, or alternatively, can carry the losses back for any of its preceding three years. [14] Conversely, all business income must be included in the taxpayer’s income and is subject to tax at the applicable marginal rate. [15] Analysis of Taxable Events DAOs may require the purchase of DAO Tokens or an NFT to join the DAO. Purchasing DAO Tokens or NFTs with fiat is not a taxable event. However, purchasing tokens or an NFT for membership with cryptocurrency is a taxable event which will ordinarily attract capital gains treatment, as the taxpayer will have disposed of the cryptocurrency used to buy the tokens or NFT for proceeds equal to the purchase price. The individual will realize a capital gain upon disposition of their cryptocurrency if the proceeds of the disposition are in excess of the ACB. [16] Purchasing tokens or an NFT membership with cryptocurrency may result in business income treatment as well if the proceeds of disposition on the purchase are deemed to have been earned from a “profession, calling, trade or undertaking of any kind whatever” or an “adventure or concern in the nature of trade”, per the analysis above. [17] Selling DAO tokens for other cryptocurrency or fiat will be subject to either capital gains tax or business income tax depending on the nature of the Member’s activity. Holding tokens long-term may help in classifying the proceeds from their sale as a capital gain or capital loss, whereas holding tokens for short periods and selling them frequently may reflect an intention to profit, classifying the proceeds as business income. [18] Profit distributions through the receipt of additional tokens to Members could be business income. [19] Members could be rewarded for their participation and contribution to the DAO which may include setting up the DAO, improving the DAO’s code and assisting with the administration of the DAO. Rewards from DAOs can include staking rewards, airdrops or unsolicited gifts. The receipt of rewards from staking DAO tokens would generally be taxed as business income, just as the traditional staking of cryptocurrencies. [20] The CRA has not released clear guidance on the tax treatment of staking, however, it has released guidance on the tax treatment of cryptocurrency mining. The CRA has stated that the income tax treatment of mining will depend on whether the mining activities are a personal activity/hobby or business activity. To note, the CRA maintains that a hobby pursued in a businesslike manner may still be taxed as business income. [21] If the CRA’s mining guidance applies to staking, there is a possibility to argue that a Member’s staking is a personal activity or hobby rather than a business activity, giving rise to a capital gain. [22] Ultimately, the CRA has not issued clear direction on the matter, and may argue in an audit that staking activity is business income. Receiving airdrops or gifts of DAO tokens can result in varying tax treatment. The receipt of unsolicited airdrops or gifts of DAO tokens, granted that the taxpayer does not intend to carry on the activity for profit, should not be considered a source of income; it could arguably be considered a personal endeavour and not a taxable event. [23] However, receiving multiple airdrops or “gifts” may be considered business income. [24] The receipt of multiple DAO tokens in this manner could constitute a pursuit of profit and thus be considered a source of income. [25] Similarly, proceeds from the sale or trade of gifted or airdropped tokens (including gifts to a person with whom a Member is at arm’s length [26] ) may be subject to capital gains tax or business income treatment, depending on whether the activity is for a pursuit of profit and accordingly a source of income. [27] Although regulators have yet to release clear guidance on the taxability of DAOs and the activities of Members, the author has presented his view of the likely taxable nature of these activities. It is important to proactively consider your crypto activity. Maintaining records and working with a tax professional will help avoid negative tax consequences. Our team of lawyers and accountants are experienced in crypto audits and offshore tax planning. If you need assistance with your cryptocurrency-tax concerns, please contact us. [1] All amounts referenced in this article are in Canadian dollars. [2] See the following for discussion on the state-level legislation in the United States allowing DAOs to register as modified limited liability companies: DeFi Education Fund, “DAO Legislation at the State-Level: Overview” (January 30, 2023), online: < https://www.defieducationfund.org/post/dao-legislation-at-the-state-level-a-brief-overview >. Wyoming and Tennesee have both enacted legislation creating DAO-specific LLCs, while Vermont has allowed DAOs to register as blockchain-based LLCs. [3] See the following for discussion on the use of the Cayman Islands’ Foundation Company structure for DAOs: Carey Olsen, “Cayman Islands Foundation Companies for DAOs, Defi and NFTs” (April 6, 2022), online: < https://www.careyolsen.com/briefings/cayman-islands-foundation-companies-daos-defi-and-nfts >. Like a traditional corporation, the foundation company has a separate legal personality and limited liability, affording DAOs abilities such as being able to execute contracts. The foundation company may also be an appealing option for DAOs as the structure can function without shareholders, making it ownerless, and powers can be wielded by persons other than directors. [4] The analysis in this article only applies to individual DAO members. It does not apply to flow-through entities such as trusts or partnerships. These entities will have different tax treatment as members of DAOs. [5] If the DAO is established in a foreign jurisdiction, there may be additional foreign tax considerations that have not been contemplated by this article. [6] The author is attempting to highlight the likely income tax treatment for each of these activities that a Member may undertake. Depending on the specific circumstances of the Member, the applicable income tax treatment may vary. This article does not consider the excise tax considerations for each of these activities. [7] Income Tax Act , RSC, 1985, c 1 (5th Supp), ss 39(1)(a) and 40(1)(a) [ ITA ]; Canada Revenue Agency, “T4037 Capital Gains 2021” at “Definitions” (January 18, 2022), online: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html . [8] ITA , supra note 7, ss 39(1)(b) and 40(1)(b); Canada Revenue Agency, “T4037 Capital Gains 2021” at “Definitions” (January 18, 2022), online: < https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html >. [9] ITA , supra note 7 , s 248(1). [10] Jinyan Li et al, “Principles of Canadian Income Tax Law”, 9th Edition, (Thomson Reuters: Toronto, 2020), citing to: Minister of National Revenue v Taylor, [1956] CTC 189 (Can Ex Ct) 56 DTC 1125 and No 476 v Minister of National Revenue, [1960] CTC 384 (SCC) 60 DTC 1270. [11] Ibid. [12] Canada Revenue Agency, “Guide for cryptocurrency users and tax professionals” (June 26, 2021), online: < https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/compliance/digital-currency/cryptocurrency-guide.html > [ Crypto Guide ]. [13] Canada Revenue Agency, Interpretation Bulletin IT-459, “Adventure or Concern in the Nature of Trade” (September 8, 1980), online: < https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it459/archived-adventure-concern-nature-trade.html > [ IT-459 ]. [14] Crypto Guide , supra note 12. [15] ITA , supra note 7, ss 38(a) and 9(1); See our previous article on the Taxation of NFTs titled “Taxation of Cryptocurrencies: The Current Utility of NFTs and their Practical Future Use Cases” for a more detailed analysis of capital gains treatment and business income treatment. [16] ITA, supra note 7, ss 39(1)(a) and 40(1)(a). [17] Ibid, s 248(1). [18] IT-459, supra note 13; Happy Valley Farms Ltd v Minister of National Revenue , [1986] 2 CTC 259, [1986] FCJ No 465 at para 14; Canada Revenue Agency, “Income Tax Audit Manual Chapter 29” (July 2020), online: < https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax-audit-manual-domestic-compliance-programs-branch-dcpb-29.html >. [19] ITA, supra note 7, ss 9(1) and 248(1). [20] ITA, supra note 7, ss 9(1) and 248(1); Michelle Legge, “Crypto Tax Canada: Ultimate Guide 2023” (April 12, 2023), online: < https://koinly.io/guides/crypto-tax-canada/ > [ Koinly ]. [21] Crypto Guide, supra note 12. [22] Ibid . [23] ITA, supra note 7, s 3; Stewart v Canada , 2002 SCC 46 at paras 48–60 [ Stewart ]. [24] ITA, supra note 7, ss 9(1) and 248(1). [25] Stewart, supra note 26 at paras 48- 60. [26] ITA, supra note 7, s 69(1). An individual may be subject to capital gains tax when gifting a token to another person with whom they do not deal at arm’s length by operation of subsection 69(1) of the Act. Subsection 69(1) will deem the donor of the token to have disposed of it for proceeds equal to its fair market value on the date of the gift. In sum, subsection 69(1) requires that a donor recognize a gain upon gifting a token for tax purposes where the fair market value of the token exceeds its ACB on the date of the gift, even where no consideration was received by the donor. When such a gift is completed, the donee of the token will generally not be subject to tax on the gift, and the donee’s new ACB will be equal to the fair market value of the token at the time of the gift. [27] Ibid , ss 39(1)(a) and 40(1)(a); Koinly , supra note 21; Stewart , supra note 26 at paras 48- 60.