How is CRA Improving its Ability to Collect Crypto Currency Data?
Currently, governments and tax agencies such as Canada Revenue Agency (CRA) are putting together a framework to better track and tax crypto currency transactions. The CRA has adopted two primary approaches to collecting data from crypto currency exchanges. The first is through self-reporting obligations, which require taxpayers to maintain adequate records, including information that identifies the other party to a transaction. The second involves regulatory reporting regimes that compel certain crypto-asset service providers to report specified virtual currency transactions. Increasing collaboration with international agencies will also assist the CRA with its tracking efforts.
Self-Reporting Obligations
A transaction involving a crypto-asset may result in business income (or loss) or a capital gain (or loss), and taxpayers are required to report such transactions accordingly. For GST/HST purposes, crypto-assets are accepted as consideration for goods and services. As such, the self-reporting requirements under both the
Income Tax Act, RSC 1985, c 1 (5th Supp) and the Excise Tax Act, RSC 1985, c E-15 may apply to crypto-asset users.
Taxpayers must maintain books and records related to the use of crypto-assets as payment for goods and services, including “a description of the nature of each transaction and the other party to the transaction (even if it is just their crypto-asset address).”
Accordingly, the CRA may be able to track crypto transactions based on the records submitted by the counterparty in fulfillment of their self-reporting obligations.
Reporting Regimes for Service Providers
Currently, the CRA gathers data from service providers through the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Under this regime, service providers—including crypto-asset trading platforms (CTPs), accountants, accounting firms, and financing or leasing entities—are subject to mandatory reporting obligations.
Starting in 2027, the Crypto-Asset Reporting Framework (CARF) will come into effect. CARF will establish a standardized international system for reporting crypto-asset transactions, enhancing transparency and information sharing across jurisdictions.
Reporting Obligations
Reporting entities are required to complete and submit reports to FINTRAC regarding certain transactions and properties. The reporting obligation specifically targeting crypto exchanges is the Large Virtual Currency Transaction Report. Since virtual currency is considered a type of property under FINTRAC’s reporting framework, other reporting obligations may also apply to transactions involving crypto assets.
Reporting entities include but are not limited to accountants and accounting firms, agents of the Crown that sell money orders, armoured car businesses, casinos, banks, credit unions, loan and trust companies, life insurance companies, brokers and agents, money services businesses and foreign money services businesses, real estate brokers, sales representatives and developers and securities dealers.
What is a Large Virtual Currency Transaction?
A large virtual currency transaction occurs when you receive virtual currency in an amount equivalent to $10,000 or more in a single transaction. Virtual currency is defined as a digital representation of value, or the private key of a cryptographic system that enables access to a digital representation of value, that can be used for payment or investment purposes.
24-Hour Rule
You must also submit a Large Virtual Currency Transaction Report to FINTRAC in accordance with the 24-hour rule. That is, you must submit a report when:
- You receive 2 or more amounts of virtual currency, that total $10,000 or more within a consecutive 24-hour window; and
- You know that the transactions are:
- conducted by the same person or entity;
- conducted on behalf of the same person or entity (third party); or
- for the same beneficiary.
Crypto-Asset Reporting Framework
The Crypto-Asset Reporting Framework (CARF) is a new international standard for the automatic exchange of information between tax authorities, developed by the Organisation for Economic Co-operation and Development (OECD).
In the 2024 federal budget, the Canadian government announced its intention to “ implement the OECD-agreed Crypto-Asset Reporting Framework, including consequential amendments to the Common Reporting Standard, effective as of 2026 to permit exchanges under the new and amended reporting requirements beginning in 2027.”
According to OECD guidelines, CARF will require crypto-asset service providers that are resident in, or carry on business in, Canada to collect and report information annually regarding their customers and crypto-assets. The reporting obligations will apply not only to exchanges but also to other intermediaries and service providers offering exchange-related services.
Collaboration with International Agencies
Collaboration with international agencies is an effective approach to assist in the collection of information. As outlined above, the CARF includes a Multilateral Competent Authority Agreement on the Automatic Exchange of Information, and an electronic format (XML schema) to be used by Competent Authorities for purposes of exchanging CARF information, as well as by Reporting Crypto-Asset Service Providers to report CARF information to tax administrations.
The Joint Chiefs of Global Tax Enforcement (J5) is another organization that can support the CRA in tracking crypto-asset transactions. The J5 comprises the Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen – en Opsporingsdienst (FIOD) of the Netherlands, His Majesty’s Revenue and Customs (HMRC) of the United Kingdom, and the Internal Revenue Service Criminal Investigation (IRS-CI) of the United States
The J5 Cyber Group aims to recover criminal proceeds and taxes on unreported income by tracing cryptocurrency and fiat funds across borders and blockchains.
Conclusion
As mentioned, according to OECD guidelines, CARF will require crypto-asset service providers that are resident in, or carry on business in Canada, to collect and report information annually regarding their customers and crypto-assets. The reporting obligations will apply not only to exchanges but also to other intermediaries and service providers offering exchange-related services.
Once CRA has unrestricted access to crypto currency exchange data the agency is certain to target taxpayers for audit and the assessment of tax, penalties and interest. The penalty in most cases will likely be a gross negligence penalty which is 25% and/or 50% of tax owing.
If you are concerned about pending enforcement related to unreported crypto currency transactions a recommended option is a voluntary disclosure for penalty and interest relief.
SpenceDrake Tax Law – Tax Lawyers
Disclaimer
Each article/blog post is only meant to provide general information. It is posted on a specific date. Laws and rules change. Please know that it may be out of date. It is not meant to provide legal advice, and it does not provide legal advice. It cannot be relied on. Every tax situation is unique, and that may mean situations differ from this article/blog. If you have legal questions, please consult a lawyer.