Cryptocurrency and tax reporting obligations

July 14, 2022 | Molly Luu, Anish Kamboj

Background framework

Section 233.3 of the Income Tax Act (Canada)[1] (the “ITA”) requires Canadian resident taxpayers (subject to certain exceptions) and partnerships with Canadian resident members (subject to certain exceptions) (each referred to as a “specified Canadian entity”) to report ownership of their “specified foreign property” if the total cost of their “specified foreign property” exceeds $100,000 in aggregate at any time during a taxation year. Taxpayers are required to file a Form T1135, “Foreign Income Verification Statement” (“Form T1135”) in these circumstances.

“Specified foreign property” is defined in subsection 233.3(1) of the ITA to include:

  1. funds or intangible property (for e.g., patents, copyrights, etc.) situated, deposited or held outside Canada;
  2. tangible property situated outside Canada;
  3. a share of the capital stock of a non-resident corporation;
  4. an interest in a non-resident trust;
  5. an interest in a partnership that holds “specified foreign property;”
  6. an interest in, or a right with respect to, a non-resident entity;
  7. a debt owed by a non-resident, including government and corporate bonds, debentures, mortgages, and notes receivable;
  8. an interest or right, including a future and/or contingent interest or right, to any property that is “specified foreign property;” and
  9. property that is convertible into, exchangeable for, or confers a right to acquire a property that is “specified foreign property.”

“Specified foreign property” does not include:

  1. property used or held exclusively in carrying on an active business of the specified Canadian entity;
  2. a share of the capital stock of, an interest in, or indebtedness of a non-resident corporation or non-resident trust that is a “foreign affiliate” of the specified Canadian entity;
  3. an interest in a non-resident trust that was not acquired for consideration;
  4. an interest in a trust described in paragraph (a) or (b) of the definition of “exempt trust” in subsection 233.2(1) of the ITA;
  5. an interest in a partnership that is a “specified Canadian entity” (i.e., a partnership that is required to file Form T1135);
  6. a right with respect to, or indebtedness of, an authorized foreign bank that is issued by, and payable or enforceable at, a branch of the foreign bank in Canada;
  7. personal-use property of the specified Canadian entity; and
  8. an interest in, or a right to acquire, any of the above-noted excluded foreign property.[2]

Form T1135 is required to be filed on or before the taxpayer’s filing due-date for the relevant taxation year.[3] For partnerships, this is the due-date for the Form T5013, “Partnership Information Return” in section 229 of the Income Tax Regulations.[4]

What about crypto?

The Canada Revenue Agency (the “CRA”) has taken the position in its published materials[5] that cryptocurrency is funds or intangible property and would be “specified foreign property” to the extent that it is situated, deposited or held outside Canada and is not used or held exclusively in the course of carrying on an active business.  Although not specified by the CRA, non-fungible tokens (NFTs) and other crypto-assets will likely be characterized as funds or intangible property as well. Crypto-assets exist on blockchain technology as digital assets, and as such, they are inherently intangible in nature.

The CRA has not commented on when it considers cryptocurrency to be situated, deposited or held outside Canada for the purposes of section 233.3 of the ITA, but it is currently reviewing this question.[6] Her Majesty’s Revenue and Customs, the tax authority in the U.K., holds the position that the situs of cryptocurrency will follow the holder’s residence for tax purposes.[7] On the other hand, the Internal Revenue Service has stated that crypto accounts will be added to the reportable foreign bank accounts of a U.S. taxpayer under the Foreign Bank and Financial Accounts rules (the FBAR rules).[8] It will be interesting to see whether the CRA follows the approach of the U.K. or the U.S. tax authorities, or develops an independent position.

A key consideration for taxpayers is whether crypto-assets are used or held in the course of carrying on an active business because “specified foreign property” excludes property used or held exclusively in carrying on an active business. Crypto-assets owned by taxpayers that are used or held exclusively in carrying on an active business, such as cryptocurrency mining, trading or other crypto-related business activity, should not have to be reported on Form T1135 under the current rules.

The CRA is actively conducting audits of those investing and trading in crypto-assets. In a 2020-2021 report,[9] the CRA confirmed that it is continuing to improve its crypto-related compliance efforts by implementing specific measures. The CRA has improved how it traces cryptocurrency transactions through surveillance software, which establishes a comprehensive picture of a taxpayer’s cryptocurrency activities.[10] The CRA also obtained an unnamed persons requirement against a Canadian cryptocurrency exchange, Coinsquare, to receive information on a subset of its customers. With this information, the CRA will verify compliance with the ITA and the Excise Tax Act.[11] The pattern of the CRA’s audit activity points toward a continued increase in compliance measures surrounding crypto-assets.

What does this mean for you?

As the CRA increases its audit measures in respect of crypto-related activity, taxpayers should take their reporting requirements seriously.

If your crypto wallet has a cost of more than $100,000,[12] is situated outside Canada, and none of the exemptions apply, then you should report the existence of these funds on Form T1135. The cost of crypto-assets held as capital property is the “adjusted cost base” of such assets, which is generally the price at which it was acquired.[13]

If your crypto-assets are held on a physical cold wallet (for e.g., a USB key) and that key is in your safety deposit box in Canada, then it is arguably situated in Canada. What happens, however, if you store your crypto-assets on an internet hot wallet? In this case, the server location is arguably the situs of the assets.

The penalties administered by the CRA for failing to comply with section 233.3 of the ITA should not be taken lightly. A taxpayer that fails to file Form T1135 as required may be subject to penalties of up to $2,500 for each taxation year.[14] If a taxpayer fails to file Form T1135 knowingly, or in circumstances amounting to gross negligence, the penalty can be up to $12,000 per taxation year.[15] An additional 5% penalty (calculated based on the greatest cost of the taxpayer’s “specified foreign property” during the taxation year) may apply if Form T1135 is filed over 24 months late and the failure is made knowingly or in circumstances amounting to gross negligence.[16] If a false statement or omission is made on Form T1135, a taxpayer may be subject to penalties equal to the greater of $24,000 and 5% of the greatest cost of the taxpayer’s “specified foreign property” during the taxation year in respect of which the false statement or omission was made.[17] Interest charges may also be imposed on penalties under the ITA.

The CRA has also stated that taxpayers investing in crypto-assets must keep proper financial records of all their activities, including records related to the acquisition or disposition of crypto-assets.[18] Pursuant to subsection 230(1) of the ITA, taxpayers are generally required to retain records that enable taxes payable to be determined, or that enable amounts which should have been deducted, withheld or collected to be determined, for a minimum of 6 years from the end of the last taxation year to which the records relate.

As part of your annual tax review season, it is prudent to understand whether your crypto is considered “specified foreign property” for the purposes of section 233.3 of the ITA and any associated tax filing obligations. If you need assistance in this regard, please contact a member of the Miller Thomson LLP Tax team.

[1] R.S.C. 1985, c.1 (5th Supp.) [ITA].

[2] Ibid, s. 233.3(1).

[3] Ibid, s. 233.3(3).

[4] C.R.C., c. 945.

[5] Canada Revenue Agency, “2014-0561061E5 – Specified foreign property” (April 16, 2015), online: Canada Revenue Agency.

[6] Canada Revenue Agency, “CRA Views 2021-0896021C6-T: APFF Q.11 – T1135 and situs of cryptocurrencies (Unofficial Translation) — Section 233.3” (October 7, 2021), online: Canada Revenue Agency [2021-0896021C6-T]; Canada Revenue Agency, “2022 IFA Annual Tax Conference CRA Roundtable” (May 17, 2022), online: Canada Revenue Agency [2022 Roundtable].

[7] 2021-0896021C6-T, supra note 6.

[8] Ibid.

[9] Canada Revenue Agency, “2020-21 Departmental Results Report” (February 1, 2022), online: Canada Revenue Agency .

[10] Ibid.

[11] R.S.C., 1985 c. E-15.

[12] Either alone or together with the cost of other “specified foreign property.”

[13] ITA, supra note 1, s 248(1); Canada Revenue Agency, “Guide for Cryptocurrency Users and Tax Professionals” (June 26, 2021), online: Canada Revenue Agency: .

[14] ITA, supra note 1, s. 162(7)(a).

[15] Ibid, s. 162(10).

[16] Ibid, s. 162(10.1).

[17] Ibid, s.163(2.4)(c).

[18] 2022 Roundtable, supra note 6.


This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada’s anti-spam laws, please contact us at

© Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting