Offshore Crypto Income

Earning income from offshore assets is not unusual for Canadian residents. When you own stocks in major American companies like Microsoft or Apple, you hold foreign assets, and dividends from those stocks can count as offshore income.

When you own more than $100,000 in foreign assets, you face more thorough reporting requirements for offshore assets. Foreign assets include cryptocurrency or NFTs in any offshore crypto exchange. And given the relatively recent arrival of crypto exchanges in Canada, many Canadian residents continue to have offshore crypto bank accounts.

As crypto tax lawyers in Canada, we can help you with offshore crypto exchanges, filing offshore crypto income, and reporting offshore assets as required under the Income Tax Act.

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Canada’s Foreign or Offshore Crypto Tax Reporting Rules

In Canada, the Income Tax Act outlines five basic rules that apply to foreign income reporting. These rules require Canadian residents to report transactions involving foreign parties or interests in foreign assets and property.

These rules largely exist as a way for the Canadian government to gather information about Canadian residents’ offshore holdings, even if they do not result in tax payable:

Section 233.1: T106 Form

According to Section 233.1, Canadian residents must file a T106 form if the resident enters a business transaction with a related non-resident.

Section 233.2: T1141 Form

Section 233.2 requires Canadian residents to file T1141 forms whenever the resident transfers or loans property to a non-resident trust or a similar entity.

Section 233.3: T1135 Form

If a Canadian resident owns or has an interest in specified foreign property, they must file a T1135 form.

Section 233.4 T1134 Form

If the Canadian resident has a foreign affiliate, the resident must file a T1134 form.

Section 233.6 T1142 Form

Section 233.6 applies to residents who are beneficiaries of a non-resident trust and receive a distribution from a non-resident trust. They must file a T1142 form.

Offshore Crypto Income Solutions

Offshore Crypto Tax Audit Support

When the CRA performs a tax audit on crypto income, they examine a taxpayer’s returns and supporting documents. A tax audit can lead to a large amount owed if you have not filed offshore crypto or NFT accounts. Talk to a crypto tax lawyer now if you are facing an audit by the CRA.

Avoid Crypto Tax Prosecution

Tax prosecution for false or misleading statements, tax evasion, or failing to file your taxes can lead to steep penalties and even jail time. Avoid crypto tax prosecution with sound tax planning and advice from a crypto tax lawyer.

Voluntary Disclosures Program

The Voluntary Disclosures Program allows you to correct past income tax returns without facing tax prosecution or harsh penalties from the CRA. If you forgot to disclose offshore crypto income in the past, the Voluntary Disclosures Program could help correct your taxes and update them.

Report & File Offshore Crypto Income

A crypto tax lawyer can help you report and file offshore crypto income as part of a comprehensive tax plan that minimizes costs while accurately reporting your offshore assets and income.

Frequently Asked Questions About Offshore Crypto

What is offshore crypto

Where cryptocurrency or an NFT is located can be a difficult question to untangle. It’s an intangible asset that exists on a digital blockchain and the decentralized nature of blockchain ledgers can make the question complicated.

If you trade or sell from an offshore crypto bank account, it is considered offshore income. If you own more than $100,000 in offshore assets, there will be additional reporting requirements in the form of a T 1135 information return.

What is an offshore crypto exchange?

An offshore crypto exchange is any exchange that operates outside of Canada. Offshore crypto exchanges must comply with the regulations of the country where they are registered. Those regulations may differ significantly from how crypto exchanges are regulated in Canada. They may have a broader selection of coins, different rules around privacy, and broader access to futures or other types of trading.

Canada’s first regulated crypto exchange only opened in 2020, so many NFT and cryptocurrency traders used offshore crypto exchanges for years.

Is crypto exchange offshore legal?

Using a crypto exchange offshore is legal, but Canadian residents must follow the reporting guidelines for offshore assets and file income going into an offshore crypto account with the CRA.

Does crypto & NFT qualify as "specified foreign property"

In 2015, the CRA took the position that digital currency is intangible property and would be specified foreign property. That means it must be reported on Form T1135 if the Canadian resident owns more than $100,000 in foreign assets and property.

Do I have to declare foreign crypto income in Canada?

Canadian residents must declare all income when they file their tax returns. Income generated from foreign crypto will be taxed either as a capital gain or as business income, depending on the nature of your cryptocurrency transactions. If you forgot to report crypto on your taxes, be sure to get professional assistance from a crypto tax lawyer to rectify your tax return.

How to report offshore crypto tax

You can report offshore crypto taxes at the same time that you file your other taxes. If you are an individual, you will have to file your return on the deadline announced by the CRA. If you are filing for an incorporated business, you must file no later than six months after the end of your tax year.

Do I have to pay taxes on offshore crypto income

Per Canadian cryptocurrency tax laws, Canadian residents must pay taxes on their world income, not just income earned within the country. This includes profits earned from the sale of foreign property. This not only applies to foreign securities or real estate but also to profits earned from the sale of offshore crypto.

How much foreign crypto income is tax-free in Canada?

Cryptocurrency income can be taxed in one of two ways in Canada. It may be treated as either business income or capital gains. If it is treated as business income, the entire profit is considered income and taxed accordingly. If it is treated as a capital gain, only half of the gain is considered income, and that can be offset if you also have capital losses to claim.

Will I go to jail if I don't declare my crypto offshore account?

The failure to file Form T1135 and report foreign property, including offshore crypto accounts, results in an automatic penalty of $2,500 for each year you failed to file. Higher penalties and criminal prosecution are possible in egregious cases.

Is a crypto gift from a foreign person taxable?

Gifts do not have to be reported as income in Canada (unless they come from an employer) and are not taxable. However, when capital property such as nan NFT or cryptocurrency is gifted, it is considered a disposition, and the person giving the gift is considered to have sold the asset at fair market value. They will be responsible for paying taxes on the disposition.

Why hire a crypto tax lawyer for unreported offshore crypto matters?

If you have unreported offshore crypto accounts or income, a crypto tax lawyer can help you with the Voluntary Disclosure Program, tax litigation, and tax audits. A crypto tax lawyer will advocate for you if you are challenging the CRA, or they can help you avoid tax prosecution by navigating the Voluntary Disclosure Program to bring your taxes up-to-date.