How CRA Views Crypto Staking on CSA-Compliant Platforms Affect Traders, Investors
Published: March 6, 2025
The State of Regulating Crypto Assets in Canada
Although the first cryptocurrency, Bitcoin, was invented 17 years ago in 2008, the regulations of cryptocurrencies and crypto platforms (also known as crypto exchanges) in Canada are still in their early stages. As late as December 2023, crypto platforms were required to run within a regulatory sandbox closely monitored by the Canadian Securities Administrators (CSA), an organization of all provincial and territorial securities regulators across Canada with the aim to improve collaboration and achieve policy consensus.
After December 2023, crypto platforms have been moved out of the CSA's sandbox but must still register with CSA members, i.e. the provincial or territorial securities regulators. The registered platforms must abide by certain conditions to help protect investors, including holding the crypto assets deposited by the customers in trust and holding the platform's own assets separately.
With regards to tax, on January 17, 2025, the Canadian Revenue Agency (CRA), through its Income Tax Rulings Directorate, issued the interpretation document no. 2024-1031821I7 on various questions on how crypto assets deposited and staked on registered crypto platforms should be taxed. The questions include:
- For crypto assets held on account of capital, is there a disposition when the crypto assets are:
- Deposited to a registered platform?
- Staked through a registered platform?
- Where taxpayers stake crypto assets through a registered platform, either undertaken directly by the platform or by a crypto custodian engaged by the platform:
- Are the staking rewards earned by taxpayers considered income under section 9 of the Income Tax Act?
- If yes, are the rewards income from business or income from property?
- When are the rewards included in the taxpayer's income?
What is Crypto Staking?
Before the questions can be answered, it is necessary to understand on a basic level what crypto staking is. Staking is the act of validating transactions in respect of a crypto asset and adding them to a publicly distributed ledger on a proof-of-stake blockchain protocol.
Each node that validates the transactions is called a validator, to be selected randomly. To participate in staking, validators must "lock up" a certain amount of crypto assets to be held at stake, as collateral. If a validator disrupts the blockchain protocol and its community, the crypto assets held at stake may be destroyed partly or fully (known as "slashed"). Staked crypto-assets may be subject to "lock-up" periods before and after the staking period, known as "bonding" and "unbonding," during which the staked crypto assets cannot be used and no staking rewards are earned.
Proof-of-work, also known as "mining," is a different and more well-known method of verifying transactions and adding them to the blockchain. It relies on "work" done by miners, who earn their rewards by competing to solve extremely complex math problems first. Mining requires powerful computers that run 24/7 and thus has been criticized for the method's huge energy consumption and environmental impact. While each method has its pros and cons, proof-of-stake has become more common with newer cryptocurrencies.
No Disposition When Depositing or Staking Crypto Assets
When crypto assets are deposited to or staked with registered crypto platforms, the taxpayers (users of the platforms) retain beneficial ownership of the crypto assets, and likewise, the crypto platforms do not acquire the beneficial ownership of the crypto assets. Therefore, there is no disposition of the deposited or staked crypto assets.
Staking Rewards are Likely Income
Without much explanation, the CRA expresses the view that staking rewards will generally be included in income under section 9 of the Income Tax Act because staking is unlikely a personal activity that is not of a commercial nature.
Such a determination, even on a general level, without an analysis of the law can be a bit hasty, especially when there is a corpus of case law on whether an activity is of personal or commercial nature. Frameworks and tests have been laid out in leading cases such as Stewart v. R., 2002 SCC 46, and Moldowan v. The Queen, [1978] 1 SCR 480. A view to profit does not preclude an activity from being of a personal nature.
Staking Rewards Can be Income from Business or from Property
The CRA admits that staking rewards cannot be predetermined to be income from business or income from property. The determination is fact-driven, depending on the taxpayer's whole course of conduct, consisting of a number of factors, the most important of which is the level of activity the taxpayer expends on earning that income. This view is reasonable, and the actual determination may be litigated in the future.
Staking Rewards are Generally Included in Income When Credited
As a matter of principle, affirmed in Canderel v. R., [1998] 1 S.C.R. 147, a taxpayer can choose any method of determining profit that provides an accurate picture of the taxpayer's profit for the year, provided that it is not inconsistent with the laws and well-accepted business principles.
In the CRA's view, staking rewards will generally be included in a taxpayer's income when the rewards are credited to the taxpayer's account on the registered platform and will not be permitted to be deferred until the rewards are disposed of. Please note that when the staking rewards are later disposed of, that will give rise to capital gains or income, depending on the circumstances of the disposition and the taxpayers' whole course of conduct.
Pro Tax Tips – Tax Treatments of Crypto Assets Deposited to or Staked with Registered Platforms
Summarizing the CRA's view, depositing or staking crypto assets on registered platforms are not disposition. When the crypto assets are staked with the registered platforms, either undertaken directly by the platform or by a crypto custodian engaged by the platform, the staking rewards are included in the taxpayer's income when the rewards are credited to the taxpayer's account on the platform. Whether the income is from business or from property is a question of facts.
If you are a crypto asset investor, in order to ascertain the tax treatment of your crypto assets, including staking income, it is recommended that you consult with experienced Canadian tax lawyers.
FAQ
What happens if I hold and stake my crypto assets with a non-registered platform?
The views expressed above by the CRA are for platforms registered with CSA members, i.e. the provincial or territorial securities regulators. However, the tax principles will still apply no matter where your income is earned, from registered or non-registered platforms, because you are taxed on your worldwide income. Also, some of the determinations above are fact-driven, so they are not static. You are advised to consult with experienced Canadian crypto tax lawyers to ensure your compliance with tax laws.
I am not convinced by the CRA's position concerning these issues. What can I do?
The CRA's tax interpretations express the thinking of the CRA on certain issues, but they are not legally binding. If you disagree with the CRA's position, you can file your tax in accordance with your own interpretation of the laws, and if the CRA assesses you differently, you can then challenge the assessment by filing a notice of objection. You should always consult with experienced Canadian crypto tax lawyers before you file tax returns on a basis that is inconsistent with the CRA's view or when you object to the CRA's assessment.
DISCLAIMER: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.