CRA Crypto Reporting Is About to Change
The Canada Revenue Agency (CRA) is about to receive significantly more information about cryptocurrency transactions involving Canadian taxpayers. Canada is implementing the Crypto-Asset Reporting Framework (CARF), an international reporting system developed by the Organisation for Economic Co-operation and Development (OECD).
CARF does not change how cryptocurrency is taxed in Canada. Instead, it changes the information that CRA will receive about cryptocurrency transactions. For Canadian taxpayers with unreported cryptocurrency transactions, that distinction is important.
What Is CARF?
CARF creates standardized reporting requirements for certain cryptocurrency exchanges, brokers and other crypto-asset service providers. Under the proposed Canadian rules, reporting crypto-asset service providers will be required to collect identifying information about users and report information about their cryptocurrency transactions. The reporting requirements are expected to apply beginning January 1, 2028.
Canada will also participate in the international exchange of CARF information. This means CRA may receive information concerning Canadian taxpayers using cryptocurrency platforms located in other participating countries.
What Cryptocurrency Information Will CRA Receive?
CARF reporting is broad. Depending on the transaction, reported information may include cryptocurrency purchases and sales, crypto-to-crypto transactions and transfers of cryptocurrency. Information will generally be reported by type of crypto-asset and can include the value and number of units involved in reportable transactions.
Crypto-to-crypto transactions are particularly important. Some taxpayers incorrectly assume that tax only becomes relevant when cryptocurrency is converted back into Canadian dollars. However, exchanging one cryptocurrency for another can itself constitute a disposition for Canadian tax purposes. CARF will make these transactions significantly more visible to CRA.
What About Foreign Crypto Exchanges?
Using a cryptocurrency exchange outside Canada does not necessarily mean that CRA will not receive information about the account. CARF is an international reporting framework. Participating countries will collect information from crypto-asset service providers within their jurisdiction and exchange information with other participating tax authorities.
This is similar in principle to the international exchange of financial account information that already occurs under the Common Reporting Standard. As CARF is implemented internationally, CRA’s ability to identify cryptocurrency activity occurring outside Canada will increase.
What About Self-Custody Wallets and DeFi?
CARF does not mean CRA will automatically receive a complete transaction history for every self-custody wallet or decentralized finance protocol. However, transfers from reporting cryptocurrency platforms to external wallets may themselves be reportable.
This can provide CRA with information showing that cryptocurrency was transferred away from an exchange, even where subsequent transactions occurred through self-custody wallets or decentralized protocols. Taxpayers should therefore not assume that moving cryptocurrency off an exchange necessarily removes the activity from CRA’s view.
CARF Does Not Change the Tax Rules
The introduction of CARF does not create a new tax on cryptocurrency. Existing Canadian tax rules continue to apply. Depending on the circumstances, profits from cryptocurrency transactions may be treated as capital gains or business income. Cryptocurrency transactions can also create other Canadian tax reporting obligations.
What CARF changes is CRA’s access to information. A taxpayer’s return can increasingly be compared against information received directly from cryptocurrency platforms and foreign tax authorities. That makes accurate cryptocurrency records increasingly important.
What If You Have Unreported Cryptocurrency?
Canadian taxpayers who have previously failed to report cryptocurrency income or gains should consider addressing the problem before CRA contacts them. CRA’s Voluntary Disclosures Program may allow taxpayers to correct previous tax filings and obtain relief from certain penalties and interest.
However, timing matters. A voluntary disclosure generally must be made before CRA takes enforcement action that would disqualify the taxpayer from the program. The fact that CRA may eventually receive information concerning a taxpayer’s cryptocurrency activity does not necessarily prevent a voluntary disclosure. Waiting until CRA begins an audit or other enforcement action can.
CARF therefore creates another reason for taxpayers with historical cryptocurrency reporting issues to review their affairs now rather than waiting for CRA to identify the problem.
Kirshen Tax Law Can Help
Cryptocurrency tax issues can become complicated quickly, particularly where taxpayers have traded across multiple exchanges, used foreign platforms, participated in DeFi, or have incomplete historical records. Kirshen Tax Law regularly assists taxpayers with cryptocurrency tax issues, CRA audits and voluntary disclosures.
If you have unreported cryptocurrency transactions or are concerned about information CRA may receive under CARF, contact Kirshen Tax Law for a free consultation with a Toronto tax lawyer.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
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