The challenge for CRA is that all they see is data from a T2125 reporting a business loss. Revenues and expenses, but not a lot on the nature of the business (which could be as simple as a single adventure in the nature of trade). So they send a standardized checklist.
The differentiation of "carrying on a business" (a high bar) and "adventure in the nature of trade" is often a source of confusion. A recent case that held that a TFSA was carrying on a business made a point of differentiating "carrying on a business" (which meant that the TFSA was subject to normal income tax on its business earnings) from "engaging in an adventure or concern in the nature of trade" (which would have allowed the TFSA's tax-free nature to apply to any gains).
Most transactions in general do not get audited, and I don't think CRA can tell that a disposition reported as a capital gain or loss was crypto or something else. Most transactions, not just crypto, don't attract CRA scrutiny, much less an actual audit. Big losses (business, rent)) are more easily identified, so they see more review activity.
My experience with most "income versus capital" issues is that CRA tends to believe that all gains are ordinary income and all losses are capital in nature, while taxpayers and their advisors know that CRA has this backwards. Somewhere between these extremes rests reality.
CRA has actually made it more difficult by heir charitable approach to commodities. What purpose, other than resale at a profit, would lead one to purchase hog futures or gold bars? Yet CRA allows many commodity transactions to be treated as capital in nature. That has become so ingrained that they now question someone reporting income gains or losses on commodity trades that had no possible purpose other than resale of the underlying commodity.
When taxpayers experience losses (for example, due to bankruptcies, theft, and fraud), they will testify that they clearly had a resale intention and should be allowed a full income deduction. Did they have past sales? Were they also reported in accordance with that clear resale intention? Frankly, even if they reported those past sales on capital account, I think those filings, not the current income loss claim, were incorrect. Of course, we can't know how the defrauded taxpayer would have reported their crypto gains if things had gone more according to plan.
If the Courts agree, when seeing those sympathetic taxpayers who may have lost their full retirement nest egg, will that lead CRA to push more for income treatment of gains as well? The test is not "did a gain or loss result?" but "what was the intended use when the asset (crypto or any other asset) when it was acquired?"
A lot of courses I instruct discuss income versus capital, and often highlight that the most common assets disputed are securities and real estate. I suspect we will add crypto in the next 5 to 10 years, as these cases proceed before the Courts. Over that period, maybe we will learn more about non-resale reasons for acquiring and retaining crypto.
Original Message:
Sent: 10-27-2025 11:04
From: Candy Davis
Subject: Hello! Is There Anybody out There? Just Nod if You can hear me!
There are NO stupid questions. I appreciate the question and I believe that it follows the same thinking that was commonplace among many practitioners (who have a very in-depth knowledge of the income tax act and precedence setting cases and rulings) when crypto taxation was becoming more of a talking point around 2014-2018 ish. You aren't alone there, I have seen some pretty in-depth analysis and tax rabbit holes taken in this direction. And boy- do I ever appreciate your vast knowledge- it used to annoy me as a young accountant ;) Now I find you to be such a source of expertise and inspiration.
From a practical standpoint, when we focus on the overall way that any stock/commodity is treated (yes, under administrative guidance) the same principles are easily extended to crypto-assets without much issue. CRA will specify shortly, in new cryptocurrency webpages that are yet to be published, that "As introduced by Interpretation Bulletin IT-479R, you are generally considered to be carrying on a business if your course of conduct indicates that you are disposing of crypto-assets in a way capable of producing gains, with that object in view, and the transactions are carried out in a manner similar to a trader or dealer in securities."
There has been a overall shift to focus less on the character of the underlying assets, and more so a focus on the activity and intention. It's interesting how much intention also falls into place with crypto-assets when we are considering An Adventure or Concern in the Nature of Trade- something that is a bit of an interesting and contentious issue when it comes to victims of crypto fraud scams.
I work closely with tax lawyers in the crypto space and have the opportunity to be in the middle of a muddy war between strict tax act applications vs. what will be allowed or administered by the CRA. It will be interested to see if any of these end up in court.
Generally, my findings from reviews of past audits are this: If there is a business income loss, CRA will do everything to deny it and will push to allow only a capital loss. For day traders- they are provided a form that doesn't relate to ANYTHING they do called a "Business Questionnaire" where they must provide answers to pages of questions to prove they have a valid business (none that relate to their particular activities in any way). These files get stuck and are messy.
Truthfully, most reported crypto transactions do not get audited. Every single substantial loss does. And as someone who deals heavily with clients who have experiences losses due to bankruptcies, theft, and fraud... I pull my hair out a lot (that explains where it went!)
But yes- I believe the capital vs. income categorization issue is easily simplified by when we back up a little bit and focus on real world applications and activities- Part of the reason the income tax act could use an overhaul and our tax system has become overly complicated. We get so stuck in the ITA we forget to stop look at the big picture, the changing world, and consider the "spirit" of the regulations.
------------------------------
Candy M. Davis, CPA, CGA
Cryptocurrency Tax Compliance Advisor
@Davis Accounting & Tax
Original Message:
Sent: 10-26-2025 10:41
From: Hugh Neilson
Subject: Hello! Is There Anybody out There? Just Nod if You can hear me!
Any intended use to earn income outside of direct resale at a profit indicates a capital asset. Most of your comments (my exception would be "a hedge against the dollar") seem like reasonable arguments for capital treatment. Even the hedge might work in the right facts (a 1984 case, Harms, 84 DTC 1966, made such a finding; "The taxpayer's intention when he purchased the gold was to preserve his capital in the face of economic collapse. The taxpayer did not trade his gold in an ordinary manner. There was no evidence that the taxpayer intended to sell the gold at the time of acquisition. He held on to it even when the price was falling and sold it only when he was convinced that, due to oncoming deflation, he would be better off buying treasury bills.")
Show me a court case that held that the purchase and sale of gold was on capital, rather than income, account. CRA allows commodity trades to be reported on capital account, provided this is done consistently. It is odd that they have never explicitly stated that this policy applies to cryptocurrencies, despite their consistent interpretation that cryptocurrencies are commodities.
Corporate shares have historically been accepted as capital assets on the basis that the holder shares in the underlying corporate operations. There was a case decided by Justice Bowman (IIRC) many years ago where he indicated that CRA accepts capital treatment far more often than is likely correct, and he interpreted that as pragmatic rather than policy-based as broader income treatment would also apply to losses.
CRA administrative policies are not law. There have been various cases over the years where taxpayers argued they should be assessed in accordance with those policies, and the Courts have never assessed contrary to the law due to CRA administrative policies. The Scott case (https://www.canlii.org/en/ca/tcc/doc/1989/1989canlii9970/1989canlii9970.html) is a very brief decision including that issue.
I suspect that, in the coming years, we will see case law involving income vs capital for crypto currency. If CRA leans too far to capital treatment, taxpayers suffering losses will be motivated to appeal. If they lean too far to income treatment, taxpayers realizing gains will be similarly motivated.
Very much an "it depends on all the facts and circumstances" matter. My facetious argument (now outdated) might be that I acquired Bitcoin to transact with sellers of cannabis when it was illegal so I would go undetected. When cannabis was legalized, I no longer needed the Bitcoin for that purposes, so I sold it and realized capital gains. The same argument could apply to any use of crypto for any form of transactions, when used to implement those transactions. It need not be transactions I wanted to keep secret - maybe crypto was/is an easier payment means than $CDN, analogous to foreign currency on income or capital account.
------------------------------
Hugh Neilson
Kingston Ross Pasnak LLP
Original Message:
Sent: 10-24-2025 20:31
From: Kyle Mackenzie
Subject: Hello! Is There Anybody out There? Just Nod if You can hear me!
Hi Hugh,
I implore you to broaden your horizons when it comes to cryptocurrency.
What is the intention of buying and selling Gold? What is the purpose of buying any non-dividend paying stock? Both of these would fit in the same category.
There are, indeed, significant functions for crypto assets.
- Store of value - Bitcoin specifically. Bitcoin can be used as a hedge against the dollar, and governments creating fiat currency out of thin air. Bitcoin can be used as collateral at major banks, including JP morgan as of today and one can take loans against it.
- Gas or usage tokens on networks - Ethereum and Solana specifically. Eth is used as the gas/payment token for transactions on the ethereum network. These tokens are used to pay the smart contract functions to the miners of the network, ensuring network security.
- Liquidity pools - Tokens can be added to liquidity pools to earn income on a regular basis - This means the underlying token itself would be used in a capital nature to earn said income.
- Staking - Many crypto assets can be staked on the network to earn income on. The original pool of these assets would be a capaital gain when unstaked and disposed of, as their primary intention was capital in nature to use to earn additional income.
There are many reasons crypto assets qualify as capital gains in nature, and this has been confirmed by the CRA through many audits.
So, John,
Breathe, breathe in the air
Don't be afraid to care
------------------------------
Kyle Mackenzie, CPA
Partner, CCO
Metrics Chartered Professional Accounting
Original Message:
Sent: 10-09-2025 12:45
From: Hugh Neilson
Subject: Hello! Is There Anybody out There? Just Nod if You can hear me!
Be careful what you wish for...
An asset purchased with the primary or secondary intention of resale at a profit generates ordinary business income, not capital gains. What other purposes have you seen for the acquisition of cryptocurrency that would support classifying them as capital assets rather than adventures in the nature of trade or full business inventory?
Let's maintain the trend - al in all, crypto is just another brick in the wall.
------------------------------
Hugh Neilson
Kingston Ross Pasnak LLP
Original Message:
Sent: 10-09-2025 10:48
From: Candy Davis
Subject: Hello! Is There Anybody out There? Just Nod if You can hear me!
Pink Floyd reference for attention!
We've got 132 members in here and not a peep! I realize that most accountants and tax practitioners steer clear of this topic, and for good reason too. It's complex and ever-changing and, frankly, it's a lot to wrap your head around if you haven't spent years personally involved in the digital asset space.
That being said, I endeavor to demystify some of it for you here!
Do me a favour, and post some questions you have about crypto here.... there are NO stupid questions. Anything from what it is, to how it works, from general to specific. from tax/accounting standpoint or just general knowledge.
I challenge you each to post one question. In response, I will slap together a video or two and we'll get some conversation flowing about this topic. Digital Assets are here to stay and I'd love to help make it a more comfortable topic for everyone.
---------
Also, I've got a very casual and easy to understand set of videos available to watch on YouTube for you and your clients regarding investment scams (which often require cryptocurrency to be purchased and transferred to fund the accounts). These scams are sweeping the nation at an unprecedented rate and our only weapon is knowledge. Please share with your colleagues, friends, and loved ones if you think they might benefit from watching. Shameless plug link here.
------------------------------
Candy Davis, CPA, CGA
Davis Accounting & Tax
------------------------------