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CRA Tax Implications for Individuals and Crypto Platforms

Crypto Tax | Nov 29, 2023

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The Canadian Revenue Agency (CRA) Has Clarified That Crypto Deposits on Trading Platforms May Trigger Taxes

As deftly summarized in this November 2023 client update article from Goodman's LLP, the CRA suggests that:

  1.  A client holding cryptocurrency through a centralized Crypto Trading Platform (CTP) may not actually own the cryptocurrency for Canadian income tax purposes.

  2. Depositing cryptocurrency with a trading and lending platform could be considered a disposition for Canadian tax purposes, making it a taxable event for the client.

Notes

  • The CRA's response was based on two specific questions. The first question involved a Canadian taxpayer who lost bitcoin due to fraud on a platform. The CRA's response highlighted the need to determine the nature of ownership and the platform's liability in such cases.
  • The loss's tax treatment depends on whether the cryptocurrency was held as a business or as a capital investment and the contractual relationship between the taxpayer and the CTP.

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  • The second question addressed the tax implications when a taxpayer transfers bitcoin to a platform offering a return, payable in bitcoin. The CRA concluded that such a transfer likely constitutes a disposition for tax purposes, as the platform acquires the right to use and dispose of the assets.

Takeaways

The CRA's positions have substantial implications for both CTPs and their Canadian clients.

  • CTPs and crypto platforms should review their contractual arrangements to determine if they imply a transfer of ownership of the cryptocurrency to them. They might need to modify their agreements to prevent unintended tax consequences for their clients.
  • Canadian taxpayers could face significant unforeseen tax liabilities. Depositing cryptocurrency with a CTP, even without the intention of immediate disposal, could realize capital gains.

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It is crucial for both parties to understand these tax implications and adjust their strategies accordingly. CTPs, in particular, should consider revising their user agreements to minimize the risk of unintended tax consequences for their clients.


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