Last updated September 18, 2024
Canada Revenue Agency (CRA) treats cryptocurrency as a commodity. You have to pay capital gains tax on your profits, and the CRA is strict about that. However, because there is still some gray area around cryptocurrency, we cannot be 100% sure whether CRA can track cryptocurrency transactions.
As of January 1, 2022, all financial services firms in Canada will be required to notify CRA of transactions above $10,000. This means that if you send $10,000 to a cryptocurrency exchange, it will be reported by the exchange to the CRA.
Even if you trade less than $10,000 at a time, it does not mean that the CRA will not be aware of your cryptocurrency trading. If the cryptocurrency exchange is registered in FINTRAC in Canada, then they need to get a copy of your government-issued ID and proof of address. Your ID is therefore linked to your account and wallet addresses on the exchange.
Cryptocurrency exchanges often claim that the verification process is to protect you from fraud and money laundering. but stock exchanges also share information with CRA. It is likely that the verification processes we are subjected to are largely in favor of the CRA.
Can CRA track cryptocurrencies? Well, yes and no. CRA can certainly link you to your wallet addresses. Once you verify your account with a Canadian cryptocurrency exchange, you are linked to everything that goes in and out of that account. Since most blockchains are public, anyone can view wallet addresses and their activity. It wouldn’t be hard for CRA to track your transactions and link your wallets to your name. If you withdraw money to your bank account, that adds another layer of tracked information that CRA can access.
On the other hand, if you use a decentralized exchange or one that is not FINTRAC compliant, then the CRA may not be able to see your cryptocurrency transactions. You can buy cryptocurrency on an exchange where you do not have to prove your identity, then send that cryptocurrency to another wallet and decide what to do with it. Keep in mind that if you sell it and transfer the money to your bank account, then the CRA will probably want to know where that money came from. But if the CRA cannot connect you to your cryptocurrency wallets, then it will be much harder for them to track your activity.
We highly recommend that you comply with Canadian tax laws. The CRA does not take tax avoidance lightly and you could get into serious trouble if they find out that you have undeclared income or capital gains. To make filing your cryptocurrency taxes easier, we recommend reading our guide to paying cryptocurrency taxes in Canada, as well as using a cryptocurrency tax calculator like Koinly. With Koinly, you can automatically import all your transactions from any exchange you have used. Koinly will calculate your capital gains tax, making the tax filing process easier. You can check out our Koinly review and experience here.
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