CRA has released a new TI (2025-1070171E5) addressing a fact pattern where a taxpayer purchased a claim for bitcoins at a discount, held it for 10 years, and ultimately received bitcoins when the foreign corporation went through liquidation. 

CRA concluded:

• The taxpayer held a claim to the bitcoin, extinguished/disposed of under subsection 248(1).
• Receipt of the bitcoins constitutes a "disposition" of that claim under the definition of "disposition."
• The tax characterization of the gain depends on whether the claim was acquired as:
  • an adventure or concern in the nature of trade (→ business income), or
  • capital property (→ capital gain/loss).
• The cost of the new bitcoins received is their FMV at the time the claim is settled (i.e., the FMV on the disposition of the claim).

This approach is fully consistent with CRA's prior 2023 TI on Mt. Gox creditor recoveries (TI 2023-0996541I7), where CRA similarly treated the taxpayer's right to receive a distribution as property, and the eventual payout as a disposition of that right.

Why This Matters for Crypto Tax Practitioners

Both TIs reinforce a key principle:

If a taxpayer's relationship with a platform gives them only a claim or contractual right to payment, then any later recovery of crypto or cash triggers a disposition of that claim. This has immediate relevance when dealing with insolvent crypto exchanges, distressed crypto IOUs, creditor distributions, etc. In these cases, the "property" being disposed of is the claim itself, not the underlying crypto.

BUT - We Must Not Overapply This to Every Exchange Failure

A critical nuance for practitioners: Not all bankrupt exchanges operated on a model where users held only a claim.

Some platforms:

• held pooled assets
• used omnibus wallets
• asserted ownership of customer crypto
• recorded user balances as liabilities

→ In these cases, the taxpayer did not beneficially own specific units of crypto, and the CRA analysis in the TI applies directly.
The taxpayer owns a claim, which is later disposed of.

Other platforms:

• segregated customer assets
• used custodial models
• held crypto in trust
• maintained wallet-level attribution

→ In these cases, the taxpayer may have owned identifiable crypto directly, meaning the insolvency event is not a "disposition of a claim" but rather a loss of property, potential theft/loss. of access, or an involuntary disposition under section 44.

This is a fact-specific legal and custody analysis based on beneficial ownership, not simply the platform's bankruptcy status.

Takeaway for Practitioners: The "disposition of a claim" framework is correct - when the taxpayer's legal relationship with the platform is that of a creditor.
But it does not apply universally to all situations.

Each case requires analyzing:

• the platform's custody architecture
• the terms of service
• whether assets were pooled or segregated
• whether the platform acted as custodian or counterparty
• whether users had any proprietary interest in the underlying crypto

Only after determining whether the taxpayer held:

(a) actual crypto, or

(b) merely a receivable

can we properly distinguish how to treat the loss/settlement.

Final Thoughts

The new CRA TI and the Mt. Gox TI together create a consistent analytical framework for situations involving claims, rights, and distressed crypto recoveries. As insolvency-related crypto distributions become more common (Celsius, FTX, Quadriga, etc.), practitioners should avoid assuming that all recoveries are dispositions of a claim. The underlying legal relationship matters, and so does beneficial ownership. However, where a claim exists, the taxpayer will have TWO taxable events- the disposition of the claim, and the acquisition of the new crypto assets. 

------------------------------
Candy M. Davis, CPA, CGA
Cryptocurrency Tax Compliance Advisor
@Davis Accounting & Tax
------------------------------

Would this mean that if a person transfers their Bitcoin into a crypto exchange depending on exactly what the detailed terms of service of the exchange is, that transfer could be taxable transaction, as exchanging a Bitcoin on the chain into a right to Bitcoin on the chain?

------------------------------
Trent Robinson
Buckberger Baerg & Partners LLP

Original Message:
Sent: 11-19-2025 11:32
From: Candy Davis
Subject: CRA's New TI on Bitcoin Claims - How It Aligns With the Mt. Gox Position, and Why Practitioners Should Be Cautious About Overextending It

CRA has released a new TI (2025-1070171E5) addressing a fact pattern where a taxpayer purchased a claim for bitcoins at a discount, held it for 10 years, and ultimately received bitcoins when the foreign corporation went through liquidation. 

CRA concluded:

• The taxpayer held a claim to the bitcoin, extinguished/disposed of under subsection 248(1).
• Receipt of the bitcoins constitutes a "disposition" of that claim under the definition of "disposition."
• The tax characterization of the gain depends on whether the claim was acquired as:
  • an adventure or concern in the nature of trade (→ business income), or
  • capital property (→ capital gain/loss).
• The cost of the new bitcoins received is their FMV at the time the claim is settled (i.e., the FMV on the disposition of the claim).

This approach is fully consistent with CRA's prior 2023 TI on Mt. Gox creditor recoveries (TI 2023-0996541I7), where CRA similarly treated the taxpayer's right to receive a distribution as property, and the eventual payout as a disposition of that right.

Why This Matters for Crypto Tax Practitioners

Both TIs reinforce a key principle:

If a taxpayer's relationship with a platform gives them only a claim or contractual right to payment, then any later recovery of crypto or cash triggers a disposition of that claim. This has immediate relevance when dealing with insolvent crypto exchanges, distressed crypto IOUs, creditor distributions, etc. In these cases, the "property" being disposed of is the claim itself, not the underlying crypto.

BUT - We Must Not Overapply This to Every Exchange Failure

A critical nuance for practitioners: Not all bankrupt exchanges operated on a model where users held only a claim.

Some platforms:

• held pooled assets
• used omnibus wallets
• asserted ownership of customer crypto
• recorded user balances as liabilities

→ In these cases, the taxpayer did not beneficially own specific units of crypto, and the CRA analysis in the TI applies directly.
The taxpayer owns a claim, which is later disposed of.

Other platforms:

• segregated customer assets
• used custodial models
• held crypto in trust
• maintained wallet-level attribution

→ In these cases, the taxpayer may have owned identifiable crypto directly, meaning the insolvency event is not a "disposition of a claim" but rather a loss of property, potential theft/loss. of access, or an involuntary disposition under section 44.

This is a fact-specific legal and custody analysis based on beneficial ownership, not simply the platform's bankruptcy status.

Takeaway for Practitioners: The "disposition of a claim" framework is correct - when the taxpayer's legal relationship with the platform is that of a creditor.
But it does not apply universally to all situations.

Each case requires analyzing:

• the platform's custody architecture
• the terms of service
• whether assets were pooled or segregated
• whether the platform acted as custodian or counterparty
• whether users had any proprietary interest in the underlying crypto

Only after determining whether the taxpayer held:

(a) actual crypto, or

(b) merely a receivable

can we properly distinguish how to treat the loss/settlement.

Final Thoughts

The new CRA TI and the Mt. Gox TI together create a consistent analytical framework for situations involving claims, rights, and distressed crypto recoveries. As insolvency-related crypto distributions become more common (Celsius, FTX, Quadriga, etc.), practitioners should avoid assuming that all recoveries are dispositions of a claim. The underlying legal relationship matters, and so does beneficial ownership. However, where a claim exists, the taxpayer will have TWO taxable events- the disposition of the claim, and the acquisition of the new crypto assets. 

------------------------------
Candy M. Davis, CPA, CGA
Cryptocurrency Tax Compliance Advisor
@Davis Accounting & Tax
------------------------------