Income Taxes: Remember to Report Cryptocurrencies

Your Cryptocurrency is Considered an Asset and Must be Reported. Bear in Mind that Measures Have Been Taken to Trace Cryptocurrency Holders.

Do you believe that your cryptocurrency transactions are anonymous? This is not the case. Over the past few years, governments have put in place numerous initiatives to better oversee this fast-paced environment and Canada is no exception to the rule.

The tax authorities have conducted an increasing number of audits related to cryptocurrency transactions to ensure that taxpayers meet their tax obligations.

The CRA's approach to cryptocurrency taxation

In the 2024 federal budget, Canada officially announced its intention to adopt the Organisation for Economic Co-operation and Development (OECD) Crypto-Asset Reporting Framework.

This new global system aims to counter tax evasion by requiring cryptoasset exchange platforms and other service providers to identify their clients, report their transactions and submit this information to the Canada Revenue Agency (CRA), which will then share it with other countries.

These rules will become effective in Canada as of 2026 and the first reports and information exchanges will take place in 2027.

Your cryptocurrency transactions are not anonymous

Many people believe that cryptocurrency transactions are anonymous, but in reality they are pseudo-anonymous. Each transaction is permanently recorded in a blockchain, which is a publicly accessible database.

This means that authorities using the correct analytical tools can trace transactions and determine the true holders even years after a transaction.

Therefore, the belief that the tax authorities cannot trace your past transactions is outdated.

The CRA recently formed a team specialized in cryptocurrency and acquired advanced technological tools to conduct tax audits based on digital transactions.

Québec is following suit with a new reporting form

Revenu Québec is going even further with the creation of the TP-21.4.39, Cryptoasset Return Form. This new form allows Revenu Québec to gather accurate information regarding cryptocurrency ownership and transactions. The form applies to all individuals, corporations and trusts that own cryptocurrency.

Please note that you must still fill out this form if you own cryptoassets, but have not conducted any transactions. Otherwise, you may be subject to penalties.

Unreported transactions: you can still correct the situation

The tax authorities have carried out extensive work in recent years to inform taxpayers that cryptocurrency transactions are taxable.

Instead of waiting until you're subject to a tax audit, be proactive!

If you did not report your income or capital gains from cryptocurrency transactions, you may have to pay taxes, penalties and interest on this income or capital gains. To avoid or reduce penalties and interest, you can voluntarily rectify your income tax returns.

To make corrections and report income that you did not report in previous years, you can:

• Submit a request to modify your income tax return.

OR

• Request a correction through the Voluntary Disclosure Program.

To determine which reporting method is best suited to your situation, don't hesitate to contact a cryptocurrency taxation expert. They are available to answer your questions and help you choose the best options.

This article was written in collaboration with Maxime Barrette-Bourque, Senior Tax Advisor at Raymond Chabot Grant Thornton.