Owning crypto across different wallets and platforms can feel simple on the surface, but the tax rules that come with it are anything but. If your crypto sits on a foreign exchange or in a non-Canadian wallet, you might be triggering extra reporting obligations without even knowing it.
The Canada Revenue Agency (CRA) has made it clear that digital assets like Bitcoin and Ethereum are treated as commodities, not money. That changes how you report them, especially when your holdings cross borders. This is where Form T1135 comes in. It is not just about capital gains anymore.
If your crypto’s cost goes above a certain threshold, you may need to declare it under foreign property rules. This guide explains what to report, which forms to file, and how to stay ahead.
How the CRA Classifies Cryptocurrency for Tax Purposes?
The CRA treats cryptocurrency as a commodity, not a form of legal money. This decision affects how every crypto transaction is taxed. Instead of applying new rules, the CRA uses existing tax principles related to capital property and business income.
Each time you dispose of crypto, whether by selling, trading, or spending it, the CRA views it as a barter transaction. That means you must determine the fair market value in Canadian Dollars at the time of the event.
This value becomes your proceeds, and you must compare it to the cost base to calculate any gain or loss. Understanding this classification is key because it influences how and when your crypto needs to be reported, especially when foreign holdings are involved.
Read More: The Ultimate Guide to Crypto Tax in Canada
What Counts as a Taxable Disposition Under CRA Rules?
Before you report your crypto activity, it is important to know what actually triggers a tax event. The CRA uses the term “disposition” to describe transactions that result in either a capital gain or business income. Below are the key actions that count as taxable dispositions.
Selling Crypto for Fiat Currency
When you sell cryptocurrency for Canadian or US dollars, it is a clear taxable event. The CRA requires you to report the proceeds in Canadian Dollars. You must subtract the adjusted cost base from the amount received to determine your gain or loss. Only fifty percent of capital gains are taxable, but all must be reported.
Trading One Crypto for Another
The CRA treats crypto-to-crypto swaps as barter transactions. Even though you do not receive fiat, you are still disposing of one asset. You must calculate the fair market value of the crypto received at the time of the trade. This value is then compared to your cost base to determine the taxable gain or loss.
Using Crypto to Buy Goods or Services
Spending crypto is not tax-free. The CRA sees this as a disposal. If you use crypto to buy a product or pay for a service, you must calculate the gain or loss by comparing the value of what you received with the cost base of the crypto used. The result is reported as a capital gain or loss.
Gifting or Donating Crypto
Giving crypto to someone else also counts as a disposition. The CRA requires you to calculate the fair market value of the asset at the time of the gift. This amount becomes the deemed proceeds, even though you did not receive any payment. If the value is higher than your cost base, you will have a capital gain to report.
Cross-Border Reporting Obligations for US-Connected Taxpayers
If you are a Canadian resident with tax obligations in the United States, reporting your cryptocurrency activity becomes more complex. You may need to file both Canadian and U.S. forms. Understanding the rules in both countries helps you stay compliant and avoid penalties on either side of the border.
FBAR Requirements for Foreign Financial Accounts
U.S. persons, including dual citizens and residents, must file an FBAR (Report of Foreign Bank and Financial Accounts) if the total value of all foreign accounts exceeds 10,000 USD at any point in the year. This includes crypto held in foreign wallets or exchanges. The form is filed separately from your income tax return.
Form 8938 for Specified Foreign Assets
Form 8938 is part of the Foreign Account Tax Compliance Act (FATCA) and must be filed if your foreign financial assets exceed 50,000 USD for single filers or 200,000 USD for those living abroad. Crypto held in foreign platforms counts toward this total. You must convert values into USD using the rate on the reporting date.
How Dual Reporting Affects Canadian Residents?
Canadian residents who also have U.S. tax obligations need to be aware of dual reporting rules. The CRA and IRS have different thresholds, currencies, and definitions for reporting crypto holdings. Proper alignment between both countries is critical to staying compliant and avoiding costly errors.
Separate Thresholds and Filing Rules
Each country has its own reporting requirements. Canada uses a 100,000 CAD threshold for Form T1135, while the U.S. applies a 10,000 USD limit for FBAR and up to 200,000 USD for Form 8938. These limits are based on different calculations and must be tracked separately, even if they apply to the same crypto holdings.
Currency Conversion Differences
Canadian reports require values in Canadian Dollars, while U.S. reports must be filed in U.S. Dollars. This means you must convert your crypto holdings using the appropriate exchange rate on the transaction or reporting date. Using the wrong rate can result in underreporting or overreporting, which increases your audit risk.
Risk of Double Penalties for Inaccurate Filing
Failure to meet reporting obligations in either country can lead to serious penalties. These include daily fines in Canada and substantial minimum penalties in the U.S. Inconsistent or missing information between your Canadian and U.S. filings could trigger enforcement actions from both tax agencies, especially as global data sharing improves.
Capital Gains vs. Business Income: Why Does It Matter?
Not all crypto profits are taxed the same way. The CRA uses your activity type to decide if your earnings should be treated as capital gains or business income. This difference has a big impact on how much tax you owe and which forms you must file.
Capital Gains Treatment
If you buy and hold crypto as a long-term investment, profits from its sale are usually considered capital gains. In this case, only fifty percent of the gain is added to your taxable income. This treatment applies when your actions show an intent to invest rather than run a business. You must report these gains using Schedule 3.
Business Income Treatment
If you trade crypto frequently, use it to operate a service, or treat it like inventory, your profits may be classified as business income. This means one hundred percent of the gain is taxable. Business-related expenses can be deducted, and income must be reported on Form T2125. The CRA decides this based on the full context of your activities.
How the CRA Decides?
The CRA uses a facts-and-circumstances test to determine how to classify your crypto income. It considers factors such as the number of trades, your level of planning, your use of external funding, and whether you promote cryptocurrency services. There are no fixed rules, so it is essential to maintain records that support your classification.
CRA Forms Required for Reporting Different Crypto Transactions
To stay compliant with CRA rules, Canadian taxpayers must use the correct forms when reporting their cryptocurrency activities. Each form serves a different purpose depending on whether your crypto activity is considered investment income, business income, or foreign property. Below are the key forms you may need to file.
Schedule 3: Capital Gains or Losses
Schedule 3 is used when your crypto transactions result in capital gains or losses. You must report the sale price, adjusted cost base, and any related expenses for each disposition. Only 50 percent of your net capital gains are included in your taxable income. Accurate record-keeping is essential for filling this form correctly.
Form T2125: Business or Professional Income
If your crypto activities are classified as business income, you must report them on Form T2125. This includes frequent trading, mining, or offering crypto-related services. The form allows you to report gross income and deduct expenses such as hardware, internet, or electricity. Note that all profits are fully taxable, and detailed documentation is required.
Form T1135: Foreign Income Verification Statement
Form T1135 is required if the total cost of your specified foreign property, including crypto on foreign exchanges or in non-Canadian wallets, exceeds 100,000 CAD. You must report the type of property, the country it is held in, and the income generated. There are two versions of the form depending on the total property value.
File Required Forms Like T1135 Properly
The CRA penalizes late or inaccurate T1135 forms. Double-check wallet ownership, dates, and values when completing the form. List crypto assets under the “other properties” category, and ensure you use the highest fair market value during the year. If unsure, consult a professional, as errors in this form can trigger an audit quickly.
Understanding Form T1135 for Foreign Crypto Holdings
If you hold crypto outside Canada, the CRA may require you to report it on Form T1135. This form is part of the Foreign Income Verification Statement and applies when the total cost of certain foreign property exceeds a specific threshold. Here’s what you need to know about how this applies to cryptocurrency.
When the T1135 Threshold Is Met?
Form T1135 must be filed if the total adjusted cost base of all specified foreign property is over 100,000 CAD at any time during the tax year. This includes crypto held in foreign exchanges or wallets. The CRA bases this threshold on the cost amount, not the market value, so even a short-term balance can trigger reporting.
What Crypto Counts as Specified Foreign Property?
The CRA considers crypto to be intangible property. If it is stored outside Canada, such as on a foreign exchange or in a self-custody wallet with global infrastructure, it may qualify as specified foreign property. Canadian platforms are generally excluded; however, any offshore account or wallet may fall under this definition, depending on its structure.
Why does the CRA Recommend a Cautious Approach?
Since the location or “situs” of digital assets is not clearly defined in Canadian law, the CRA advises taxpayers to err on the side of caution. This means you should report foreign crypto holdings if there is any doubt. Failing to do so could lead to audits and penalties, as the burden of proof rests with you.
Form T1135 and Self-Custody Wallets
Holding your crypto in a self-custody wallet does not guarantee exemption from T1135. If the wallet software or node infrastructure operates outside Canada, the CRA may view it as foreign. This makes it important to evaluate where your assets are technically stored, not just where you live or where the wallet was created.
Best Practices for Record-Keeping and Audit Defense
Keeping accurate records is one of the most important things you can do to protect yourself during a CRA audit. With crypto transactions spread across platforms, wallets, and currencies, missing or incomplete data can lead to serious problems. Here are the key practices every taxpayer should follow.
Keep All Transaction Records for Six Years
The CRA requires you to retain crypto-related records for at least six years from the end of the last tax year they relate to. This includes buy and sell dates, amounts in Canadian Dollars, wallet addresses, and the purpose of each transaction. If you file late or are under audit, you may need to keep them even longer.
Track Cost Base and Fair Market Value
For each transaction, you must be able to show both the adjusted cost base and the fair market value at the time of disposal. This applies whether the transaction was a trade, sale, or payment. Missing this information makes it difficult to calculate gains or losses accurately, increasing your audit risk and likelihood of penalties.
Download Data Before Exchanges Shut Down
Crypto platforms can shut down without notice, taking your transaction history with them. The CRA recommends downloading your data at regular intervals to avoid this risk. Without your cost base and trade records, it becomes nearly impossible to prove your reported income is accurate, which could lead to re-assessments or fines.
Penalties for Non-Compliance With CRA Crypto Rules
Failing to report crypto transactions correctly can result in more than just interest charges. The CRA has issued specific penalties for late filings, false disclosures, and repeated failures. These penalties apply to capital gains, business income, and especially foreign property like crypto on international exchanges. Here are the key non-compliance risks to be aware of.
Late Filing of Form T1135
If you miss the deadline to file Form T1135, the CRA can charge a penalty of 25 CAD per day, up to a maximum of 2,500 CAD. If the delay is found to involve gross negligence, the fine can rise to 500 CAD per month for up to 24 months. These penalties apply even if no tax is owed.
False Statements or Omissions
Providing incorrect or incomplete information about your crypto transactions can lead to serious consequences. The CRA may charge a penalty equal to the greater of 100 CAD or 50 percent of the understated tax or overstated credit. If multiple errors are found, each one can be penalized separately, increasing your overall liability.
Repeated Failure to Report Income
If you fail to report income of 500 CAD or more in the current year and in any of the three previous years, the CRA will consider it a repeated failure. The penalty is the lesser of 10 percent of the unreported amount or 50 percent of the related tax. This applies even if the error was unintentional.
How Can KoinX Help With Cross-Border Crypto Transactions?
Managing cross-border crypto reporting is not just complicated; it can be risky if done wrong. With multiple jurisdictions, shifting values, and strict CRA rules, investors need a reliable way to stay compliant. KoinX offers a one-stop solution that simplifies your entire reporting process. Here’s how it can help:
Connects With 800+ Exchanges, Wallets, and Blockchains
KoinX seamlessly integrates with over 800 crypto platforms. Whether you trade on major global exchanges or use self-custody wallets, KoinX can import all your transactions automatically. This eliminates the need for manual data entry, ensuring you never miss a single cross-border activity across chains or jurisdictions.
Automatically Categorizes Transactions
Every transaction is categorized based on CRA definitions, including swaps, transfers, gifts, and trades. This saves time and avoids mistakes. KoinX uses smart rules and built-in compliance checks to ensure each entry aligns with CRA expectations, reducing your risk during audits or reviews.
Calculates Adjusted Cost Base in CAD
KoinX tracks cost basis and fair market value in Canadian Dollars, even for complex cross-border trades. It applies real-time and historical conversion rates to help you calculate capital gains or business income accurately, which is crucial when dealing with crypto held or sold outside Canada.
Generates CRA-Ready Tax Reports
At tax time, KoinX prepares detailed reports that match CRA requirements. These include summaries for Schedule 3, T2125, and Form T1135 if needed. You can download these reports and share them directly with your accountant, saving hours of manual work and ensuring complete reporting accuracy.
Join KoinX today to automate your crypto tax reporting, reduce your audit risks, and take full control of your cross-border compliance.
Conclusion
Staying compliant with CRA crypto reporting rules is not optional, especially when your transactions involve foreign exchanges or wallets. The CRA has made it clear that failure to report crypto accurately can result in steep penalties and increased audit scrutiny.
Cross-border holdings add another layer of risk, and Form T1135 plays a crucial role in flagging high-value foreign assets to the CRA. Proactive compliance is the smartest approach, and using automated tools like KoinX can make the process far less stressful.
Start using KoinX today to simplify your crypto tax reporting in Canada and meet all CRA requirements with confidence.
Frequently Asked Questions
Do I Need To Report Crypto Held on Foreign Exchanges?
Yes, if the total cost of your crypto on non-Canadian exchanges exceeds 100,000 CAD, it must be reported on Form T1135. The CRA treats crypto as specified foreign property. Failing to report such holdings may result in audit flags or financial penalties, even if the assets are not generating income.
Is Crypto in a Self-Custody Wallet Considered Foreign Property?
Yes, if your self-custody wallet is managed outside Canada or the private keys are hosted internationally, it may count as foreign property. The CRA focuses on where the asset is held or controlled. It is essential to maintain detailed records to prove ownership and jurisdiction in the event of scrutiny.
What Happens If I Miss the T1135 Filing Deadline?
If you file Form T1135 late, the CRA can charge a penalty of 25 CAD per day, up to a maximum of 2,500 CAD. If the delay is considered gross negligence, the fine can be significantly higher. Penalties apply even if no tax is due, so timely filing is crucial.
Can I Fix Past Crypto Reporting Mistakes With the CRA?
Yes, you can use the CRA’s Voluntary Disclosures Program (VDP) to correct past crypto reporting errors before an audit begins. If accepted, the CRA may waive some penalties. However, interest charges may still apply, and the application must be complete and submitted before any enforcement action is taken.