Tax Court Confirms Cryptocurrency Fraud Loss Can Be a Business Loss
In Amicarelli v The King, 2025 TCC 185, the Tax Court of Canada delivered one of the most detailed decisions to date on the tax treatment of cryptocurrency losses arising from fraud. The case addresses whether a taxpayer who lost Bitcoin through the collapse of the QuadrigaCX exchange was entitled to deduct that loss as a non-capital loss rather than a capital loss, or no loss at all.
For taxpayers facing Canada Revenue Agency (CRA) scrutiny in this area, the characterization of a cryptocurrency tax loss in Canada can be outcome-determinative. We have seen an increase in CRA disputes involving cryptocurrency trading and exchange failures, and this decision provides practical guidance on how the Court will approach the evidence and the legal test. If you are dealing with a crypto reassessment or audit, speaking with a Toronto tax lawyer early can matter.
Background: Bitcoin Trading and the QuadrigaCX Collapse
The taxpayer, Ms. Amicarelli, opened a QuadrigaCX account in 2017 and used it extensively to acquire Bitcoin. She funded purchases using personal savings, borrowed funds, RRSP withdrawals, a second mortgage, and high-interest credit cards. Over 2017, she made frequent purchases and closely monitored her account and market movements.
In late 2017, her QuadrigaCX account balance suddenly dropped to zero. Recovery attempts failed. QuadrigaCX later collapsed amid revelations of fraud and mismanagement, which the Court accepted as relevant context, including findings in an Ontario Securities Commission staff report.
Ms. Amicarelli claimed a non-capital loss on her 2017 return. The CRA denied the loss, taking the position that no deductible loss had been established and that, in any event, the activity was not a business.
The Key Legal Issues
The Court was asked to decide two central questions. First, whether Ms. Amicarelli actually incurred a loss in 2017 in connection with Bitcoin held through QuadrigaCX. Second, if a loss occurred, whether it was on income account or capital account.
The distinction matters. A non-capital loss can generally be applied against other income and carried back or forward, while a capital loss is subject to more restrictive rules. If there is no source of income at all, no deduction is permitted.
The Court Accepts That a Cryptocurrency Loss Occurred
Although the documentary record was imperfect and the taxpayer’s post-loss conduct was described as unusual, the Court ultimately accepted that a loss occurred, most likely due to fraud.
The Court emphasized that tax cases are decided on a balance of probabilities, not absolute certainty. The surrounding circumstances, including the timing of the loss and the broader QuadrigaCX scandal, supported the taxpayer’s account.
Cryptocurrency Trading as a Business
The most significant part of the decision is the Court’s analysis of whether Ms. Amicarelli’s Bitcoin activity constituted a business or an adventure in the nature of trade under subsection 248(1) of the Income Tax Act (Act).
The Court applied established factors, including intention, conduct, financing, and the nature of the property. It found that the taxpayer had a clear profit-making intention, engaged in frequent and systematic transactions, devoted substantial time to monitoring and trading, and used aggressive financing consistent with a speculative trading strategy.
Bitcoin itself was treated as property capable of being bought, sold, and stolen. The Court rejected any suggestion that the activity was personal or recreational. There was no evidence of personal use of Bitcoin, and the financing costs alone made a personal-use explanation implausible.
On balance, the Court concluded that the taxpayer’s cryptocurrency trading amounted to an adventure in the nature of trade and therefore constituted a business.
Loss From Fraud Is Deductible When Connected to a Business
The Court confirmed an important principle that extends beyond cryptocurrency. Where a loss from theft or fraud is incidental to a business, it may be deductible on income account. The fact that crypto markets are risky or lightly regulated does not change this analysis.
The Court also emphasized symmetry. If profits from speculative crypto trading are fully taxable as business income, losses arising from the same activity must also be recognized.
As a result, the taxpayer was entitled to claim a non-capital loss of $473,241.74 in her 2017 taxation year.
Why This Decision Matters for Canadian Taxpayers
Amicarelli provides useful guidance on how Canadian courts will analyze cryptocurrency losses, particularly in fraud or exchange-collapse scenarios. It confirms that crypto losses are not automatically capital losses and that, in the right factual circumstances, they may be fully deductible as business losses.
The decision also underscores the importance of evidence. While the taxpayer ultimately succeeded, the Court noted gaps in documentation and emphasized that these cases often require testimony and careful reconstruction of events.
Kirshen Tax Law Can Help
Cryptocurrency tax disputes are highly fact-specific and often aggressively challenged by the CRA. Proper characterization of cryptocurrency activity, whether as capital investing or business trading, can mean the difference between a meaningful deduction and none at all.
Kirshen Tax Law advises clients on cryptocurrency tax issues, including CRA audits, reassessments, and Tax Court appeals involving crypto trading, exchange failures, and fraud-related losses. If you are dealing with a disputed cryptocurrency tax loss in Canada or a CRA audit, call us for a free consultation with a Toronto tax lawyer to put yourself in the best position to resolve the matter efficiently.
Jeff Kirshen BA, JD (CA), JD (US)
Tax Lawyer | Founder, Kirshen Tax Law
Disclaimer
The content on this website, including articles and blog posts, is provided for general informational purposes only. It reflects the laws and regulations as of the date of publication, which may have since changed. This content is not intended to serve as legal advice and should not be relied upon as such. Tax laws and situations can be complex and unique to each individual. The information provided may not apply to your specific circumstances. For personalized advice regarding your tax or legal matters, we recommend consulting a qualified lawyer.