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Canada’s tax laws and rules, including the Income Tax Act, apply to cryptocurrency transactions. The Canada Revenue Agency (CRA) has treated cryptocurrency as a commodity rather than a government-issued currency. Accordingly, the use of cryptocurrency to pay for goods or services is treated as a barter transaction.  

CRA’s cryptocurrency guide only makes explicit reference to the tax treatment of mining. Law firms appear to note that since staking is similar in nature to the mining of cryptocurrencies, one should treat received coins from staking in a similar fashion to those from mining. The mining of cryptocurrencies can be undertaken for profit (as a business) or as a personal hobby. Virtual currencies acquired via commercial mining activities are considered business income, and the mined assets are considered inventory of the business. Mining as a hobby or personal activity is first taxable upon the disposal of the asset, and a profit from sale of the asset is taxable as a capital gain.

I. Introduction

Canada allows the use of digital currencies, including blockchain-based cryptocurrencies,[1] as a means of payment.[2] According to the Government of Canada webpage on digital currencies, “[y]ou can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges.”[3] However, cryptocurrencies are not considered legal tender in Canada.[4] “Legal tender,” as defined by the Currency Act,[5] means “bank notes issued by the Bank of Canada under the Bank of Canada Act” and “coins issued under the Royal Canadian Mint Act.”[6] Mining of cryptocurrencies can also be undertaken for profit (as a business) or as a personal hobby.

Canada’s tax laws and rules, including the Income Tax Act,[7] apply to cryptocurrency transactions. The Canada Revenue Agency (CRA), which administers tax laws and policies, “has characterized cryptocurrency as a commodity and not a government-issued currency. Accordingly, the use of cryptocurrency to pay for goods or services is treated as a barter transaction”[8] for income tax purposes, and the CRA recommends consulting its Interpretation Bulletin IT-490[9] for more information on the tax implications of barter transactions.[10] According to the CRA, “[a]ny income from transactions involving cryptocurrency is generally treated as business income or as a capital gain, depending on the circumstances. Similarly, if earnings qualify as business income or as a capital gain then any losses are treated as business losses or capital losses.”[11] Cryptocurrency “may be accepted as payment for a taxable good or service by a GST/HST registrant. In such a case, the GST/HST rules require that the fair market value of the consideration that was received for the good or service be determined and GST/HST calculated based on that value.”[12]

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II. Tax Treatment of Block Rewards or Reward Tokens

The CRA website on virtual currencies has a section on “[w]hat tax rules apply when virtual currency is earned from mining or staking?,”[13] and it goes on to define each activity:

Mining involves using computers to solve mathematical problems that confirm cryptocurrency transactions. Miners will place cryptocurrency transactions in blocks and try to guess the number that will create a valid block. A valid block is accepted by the corresponding cryptocurrency’s network and becomes part of a public ledger, known as a blockchain. When a miner successfully creates a valid block, they will receive two amounts in one payment. One amount will represent the creation of a new cryptocurrency on the network and the other amount will represent the fees from transactions included in the newly validated block. Those who do the mining are paid in the cryptocurrency that they are validating.

Staking (proof of stake) is a different process to earn cryptocurrency payments but may still result in earnings that have tax implications. Proof of stake is an alternative distributed consensus mechanism where a person is selected out of a group of participants (forgers) to validate a block of transactions. Much like mining, when the selected person successfully creates a valid block, they will receive two amounts in one payment. One amount will represent the creation of a new cryptocurrency on the network and the other amount will represent the fees from transactions included in the newly validated block.[14]

For the tax implications of each activity, it makes reference to the cryptocurrency guide. However, the guide only makes explicit reference to the tax treatment of mining. One law firm notes that the CRA “has not released specific guidance for staking of cryptocurrency. Because staking is similar in nature to mining of cryptocurrencies, the safest approach is to treat received coins from staking in a similar fashion to mining.”[15]

Mining of cryptocurrencies can be undertaken for profit (as a business) or as a personal hobby (which is nontaxable).[16] According to the CRA,

[t]he income tax treatment for cryptocurrency miners is different depending on whether their mining activities are a personal activity (a hobby) or a business activity. This is decided case by case. A hobby is generally undertaken for pleasure, entertainment or enjoyment, rather than for business reasons. But if a hobby is pursued in a sufficiently commercial and businesslike way, it can be considered a business activity and will be taxed as such.[17]

Virtual currencies acquired via commercial mining activities are considered business income, and the mined assets are considered inventory of the business.[18] According to the lawyers from Gowling WLG,

[i]f the taxpayer mines in a commercial manner, the income from that business must be included in the taxpayer’s income for the year. Such income will be determined with reference to the value of the taxpayer’s inventory at the end of the year, established pursuant to the rules in section 10 of the ITA and Part XVIII of the Regulations regarding valuing inventory.[19]

CRA mentions two methods for valuing inventory consistently from year to year:

  • value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower
  • value the entire inventory at its fair market value at the end of the year (generally, the price that you would pay to replace an item or the amount that you would receive if you sold an item)[20]

Businesses also have the “ability to deduct their expenses from business income. For instance, mining hardware, electricity and other costs can be calculated on a per coin basis and deducted against the sales proceeds.”

Mining as a hobby or personal activity is considered a “speculative investment,” and the “first taxable event occurs on the disposal of the asset.”[21] According to CRA guidance,

[i]f the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain. Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. This is called the taxable capital gain. Any capital losses resulting from the sale can only be offset against capital gains; you cannot use them to reduce income from other sources, such as employment income. You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.[22]

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III. Tax Treatment of Airdrops and Hard Forks

There does not appear to be specific mention of the tax treatment for airdrops and hard forks by the CRA. However, one tax guide states that “in Canada the cost basis is zero for these coins. Therefore when the coins are disposed the entire proceeds are considered capital gains (for individuals) or income (for businesses).”[23]

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Prepared by Tariq Ahmad
Foreign Legal Specialist
January 2021


[1] Virtual Currency, Canada Revenue Agency (CRA) (June 26, 2019),https://perma.cc/9RGX-GTEX

[2] Digital Currency, Financial Consumer Agency of Canada (FCAC), (Jan. 19, 2018),https://perma.cc/9RGX-GTEX

[3] Id.

[4] Id.

[5] Currency Act, R.S.C. 1985, c C-52, https://perma.cc/4A4E-3XBH.

[6] Digital Currency,FCAC, supra note 2; Currency Act § 8.

[7] Income Tax Act, R.S.C. 1985, c 1 (5th Supp.), https://perma.cc/2BFF-87QL.

[8] Mariam Al-Shikarchy et al., Canadian Taxation of Cryptocurrency . . . So Far, Lexology (Nov. 14, 2017), https://perma.cc/KVX9-L5XA.  

[9] CRA, Interpretation Bulletin IT-490, Barter Transactions (July 5, 1982), https://perma.cc/R7A4-FHGG.

[10] Virtual Currency, CRA, supra note 1.

[11] Guide for Cryptocurrency Users and Tax Professionals, CRA (Mar. 8, 2019), https://perma.cc/PL2Q-VVQF; to determine whether a transaction is on an income account or a capital account, CRA refers taxpayers to paragraphs 9 to 32 of Interpretation Bulletin IT-479R, Transactions in Securities (Feb. 24, 1984), https://perma.cc/5LB8-J8ER.

[12] Id.

[13] Virtual Currency, CRA, supra note 1.

[14] Id.

[15] Cryptocurrency Taxes in Canada: The 2020 Guide, Koinly (July 12, 2020), https://perma.cc/247Q-WVSR.

[16] Cryptocurrencies and Tax: Five Things Every Canadian Needs to Know, Wildeboer Dellelce (Dec. 12, 2017), https://perma.cc/F7RC-R2D3

[17] Guide for Cryptocurrency Users and Tax Professionals, supra note 11.

[18] OECD, Taxing Virtual Currencies: An Overview of Tax Treatments and Emerging Tax Policy Issues 26 (2020), https://perma.cc/JWQ5-CDVG.

[19] Al-Shikarchy et al., supra note 8.

[20] Guide for Cryptocurrency Users and Tax Professionals, supra note 11.

[21] OECD, supra note 18, at 26.

[22] Guide for Cryptocurrency Users and Tax Professionals, supra note 11.

[23] Koinly, supra note 15.

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Last Updated: 02/05/2021