Oleg Galeev

9 months ago

Can the CRA Track Cryptocurrency?

CRA is watching your cryptocurrency transactions

The Canada Revenue Agency (CRA) treats cryptocurrency as a commodity. You must pay capital gains tax on your profits and the CRA is strict about this. However, since there is still somewhat of a grey area around cryptocurrency, we can’t 100% be sure about whether the CRA can track cryptocurrency trades.

Effective January 1, 2022, all Money Services Businesses in Canada will have to notify the CRA of transactions greater than $10,000. This means if you send $10,000 to a cryptocurrency exchange, it will be reported by the exchange to the CRA.

Even you trade less than $10,000 at a time, this does not mean that the CRA won’t know of your cryptocurrency trading. If a cryptocurrency exchange is registered with FINTRAC in Canada, then they are required to obtain a copy of your government-issued ID and proof of address. Your ID is therefore linked to your account and wallet addresses on the exchange.

Crypto exchanges will often claim that the verification process is to protect you from fraud and money laundering but exchanges also share information with the CRA. It’s likely that the verification processes we are subjected to are mostly for the CRA’s benefit.

Can the CRA track cryptocurrency? Well, yes and no. The CRA can certainly link you with wallet addresses. As soon as you verify your account with the Canadian crypto exchange, you will be associated with everything that goes in and out of that account. Since most blockchains are public, anyone can view wallet addresses and their activity. It would not be difficult for the CRA to follow your transactions and link your wallets to your name. If you cash out to your bank account, this adds another layer of trackable information that the CRA can access.

On the other hand, if you use a decentralized exchange or one that does not comply with FINTRAC regulations, then the CRA may not be able to see your crypto trades. You could buy crypto on an exchange where you do not need to prove ID, then send that crypto to another wallet and decide from there what you will do with it. Remember, if you sell it, and transfer the money to your bank account, then the CRA will likely want to know where that money came from. But if the CRA cannot link you to your crypto wallets then it becomes much more difficult for them to track your activity.

We highly recommend that you abide by Canadian tax laws. The CRA does not take tax avoidance lightly and you could be in serious trouble if they find out you have undeclared income or capital gains. To make your crypto tax reporting easier, we recommend reading our guide to paying cryptocurrency taxes in Canada, as well as using a crypto tax calculator such as Koinly. With Koinly you can automatically import all of your trades from every exchange that you have used. Koinly will calculate your capital gains tax for you, making the tax reporting process easier. You can check our review and experience with Koinly here.

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Author

Oleg is a Canadian citizen & crypto expert who has been trading since 2016. He started out with Coinbase, Kraken and Peer-to-Peer exchanges. After some time, centralized exchanges started charging crazy fees to their users.

He decided to review different crypto exchanges that operate in Canada in order to educate Canadians on what kinds of things are going inside each one while giving them unbiased advice. On top of that, Oleg also has experience with NFT, airdrops, and crypto staking and he is constantly checking on new crypto assets.

His writing has been featured in popular Canadian media sources such as Toronto Sun and Ottawa Citizen.