Canada Crypto Income Tax Guide 2025

What is Crypto Income in Canada?

Cryptocurrency income refers to crypto received as payment for work, goods, services, or rewards. The Canada Revenue Agency (CRA) treats crypto income as either employment income or business income, both taxed at full ordinary income rates (not the 50% capital gains inclusion rate).

Types of Crypto Income

• Employment income: Salary or wages paid in cryptocurrency
• Business income: Crypto received from carrying on a business (trading, mining, services)
• Freelance/contractor income: Payments for services in crypto
• Airdrops: Free tokens distributed to wallet holders
• Hard forks: New coins from blockchain splits
• Referral bonuses: Exchange referral rewards
• Learn-to-earn: Coinbase Earn, educational rewards
• Play-to-earn: Gaming rewards
• Staking rewards: May be business income (CRA unclear)
• Mining rewards: Business income

CRA Treatment of Crypto Income

CRA Guidance on Cryptocurrency

The CRA's position on cryptocurrency is found in various folios and interpretations:

"When you use cryptocurrency to pay for goods or services, the CRA treats it as a barter transaction for income tax purposes. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency."

Business Income vs Capital Gains

The CRA distinguishes between:

• Business income: 100% taxable, from carrying on a business or trade
• Capital gains: 50% taxable (66.67% for gains over $250k/year as of 2024), from disposing of investment property

Receiving crypto as income = business/employment income (100% taxable)

Key CRA Principles

• Barter transaction rules apply when receiving crypto
• Fair market value (FMV) in CAD at time of receipt
• Income character matters: Employment vs business income
• Intention and frequency determine if activity is business or investment

Employment Income vs Business Income

Employment Income

You have employment income if you:

• Receive crypto as an employee
• Have an employer-employee relationship
• Work under someone else's control and direction
• Receive T4 slip from employer

Tax treatment:

• Report on T4 slip (employer provides)
• Include on Line 10100 of tax return
• Subject to income tax + CPP and EI deductions
• Employer withholds tax at source

Business Income

You have business income if you:

• Work as a freelancer or independent contractor
• Carry on a trade or business with crypto
• Regularly buy and sell crypto for profit
• Mine cryptocurrency as a business
• Provide crypto-related services

Tax treatment:

• Report on Form T2125 (Statement of Business Activities)
• Include on Line 13500 (business income) or Line 13700-14300 (professional income)
• Subject to income tax
• Subject to CPP contributions (employer + employee portions)
• Can deduct business expenses

Hobby vs Business

The CRA uses several factors to determine if activity is a business:

• Profit motive: Are you seeking profit?
• Frequency: How often do you transact?
• Regularity: Is it organized and systematic?
• Nature of activity: Commercial in nature?
• Time and effort: Significant time invested?

When is Crypto Income Taxable?

Cryptocurrency income is taxable in the year it is received. The taxable amount is the fair market value in CAD at the time of receipt.

Receipt Date Examples

How to Calculate Income Value

Fair Market Value (FMV)

Fair market value is the price in CAD at the time of receipt. Use:

• Canadian exchange rate: Price from a Canadian exchange (Coinsquare, Bitbuy, Kraken)
• Major exchange conversion: USD price converted to CAD using Bank of Canada rate
• Consistent method: Use the same method throughout the year
• Reasonable valuation: CRA accepts reasonable methods

Example Calculation

Scenario: You complete a freelance project and receive 1 ETH on March 15, 2025. ETH is trading at CAD $4,400 at the time.

• Amount received: 1 ETH
• FMV at receipt: $4,400 CAD per ETH
• Taxable income: $4,400
• Cost basis: $4,400 (for future capital gains calculation)

Tax Rates in Canada

Federal Income Tax Rates (2024)

Provincial Tax Rates (Examples - 2024)

Provincial rates vary. Combined federal + provincial top rates:

CPP and EI Contributions

Canada Pension Plan (CPP)

Employees:

• Rate: 5.95% on earnings between $3,500 and $68,500 (2024)
• Maximum contribution: $3,867.50

Self-employed:

• Rate: 11.9% (both employer and employee portions)
• Maximum contribution: $7,735
• Can deduct employer portion from income

Employment Insurance (EI)

Employees only:

• Rate: 1.66% on insurable earnings up to $63,200 (2024)
• Maximum contribution: $1,049.12
• Self-employed: Generally not required to contribute

Hard Forks and Airdrops

CRA Position on Airdrops

The CRA hasn't issued specific guidance on airdrops, but based on general income principles:

Promotional Airdrops (No Service)

• May not be immediate income (like finding property)
• Cost basis = $0
• When sold: Entire proceeds are capital gains (or business income if trading)

Bounty/Service Airdrops

• Business or employment income if service provided
• FMV at receipt = income
• Cost basis = income value

Hard Forks

If you receive new coins from a hard fork:

• Conservative approach: Income when received
• Alternative view: No income until disposed (cost basis $0)
• CRA hasn't clarified: Consult a tax professional

Example: Token Airdrop

You receive 1,000 tokens from a promotional airdrop. No service was required.

Conservative approach:

• FMV at receipt: $500
• Income: $500 (business/other income)
• Cost basis: $500

Alternative approach:

• No immediate income
• Cost basis: $0
• When sold: Entire proceeds are gains

Crypto Salary and Employment Income

Receiving Salary in Crypto

If your employer pays you in cryptocurrency:

• Treated as employment income
• Employer must value in CAD
• Subject to payroll deductions (income tax, CPP, EI)
• Reported on T4 slip
• FMV = employment income amount

Employer Responsibilities

Employers paying in crypto must:

• Calculate CAD value at payment date
• Withhold income tax, CPP, and EI
• Remit to CRA via payroll remittance
• Issue T4 slip showing income in CAD
• Report on T4 Summary

Example: Annual Salary

Scenario: Your employer pays you $80,000 annual salary, 40% in Bitcoin.

• Cash portion: $48,000
• BTC portion: $32,000 (valued in CAD each pay period)
• Total gross income: $80,000
• T4 shows: $80,000 in Box 14 (employment income)
• Deductions: Income tax, CPP, EI withheld
• Cost basis: $32,000 total for all BTC received

Self-Employment and Business Income

Receiving Crypto as Payment

If you're self-employed or operating a business and receive crypto:

• Business income (100% taxable)
• Report on Form T2125
• Subject to income tax
• Subject to CPP contributions (both portions)
• Can deduct business expenses

Allowable Business Expenses

You can deduct reasonable business expenses:

• Office supplies and equipment
• Computer and hardware
• Software and subscriptions (crypto tax software, etc.)
• Home office expenses (if qualify)
• Internet and phone (business portion)
• Professional fees (accountant, lawyer)
• Transaction fees and exchange fees
• Advertising and marketing
• Vehicle expenses (business use)

Example: Freelance Developer

You're a freelance web developer earning $90,000 in crypto payments.

• Gross business income: $90,000
• Business expenses: $15,000
• Net business income: $75,000
• Report on T2125
• Federal tax (Ontario example):
  • First $55,867 @ 15% = $8,380
  • Remaining $19,133 @ 20.5% = $3,922
  • Federal total: $12,302
• Provincial tax (Ontario): ~$5,000
• CPP contributions: $7,735 (self-employed max)
• Total tax/CPP: ~$25,037

Learn-to-Earn Programs

Coinbase Earn and Similar

Learn-to-earn programs pay users for educational activities:

• Coinbase Earn: Watch videos, answer questions
• Binance Learn & Earn: Similar structure
• CMC Earn: Educational content rewards

Tax Treatment

Since you perform tasks to receive rewards:

• Business or other income (not employment)
• Taxable at FMV when received
• Report on T2125 if business or Line 13000 if other income
• May require CPP if business income

Example: Coinbase Earn

You complete 7 Coinbase Earn lessons in 2024:

Report $35 as other income on Line 13000 (or business income if you do this regularly).

Play-to-Earn Gaming

What is Play-to-Earn?

Play-to-earn games reward players with cryptocurrency:

• Axie Infinity: Earn SLP and AXS tokens
• Decentraland: Earn MANA
• The Sandbox: Earn SAND
• Gods Unchained: Earn GODS and NFT cards
• Splinterlands: Earn DEC and cards

Tax Treatment

Casual Players

• Other income when rewards are claimed
• Report on Line 13000
• Taxed at ordinary rates
• No CPP required

Professional/Business Players

• Business income if systematic and profit-seeking
• Report on T2125
• Subject to CPP contributions
• Can deduct expenses (game assets, equipment)

Example: Axie Infinity

Casual player: You play occasionally and earn $400 CAD in SLP over the year.

• Income: $400
• Report on Line 13000 (other income)
• Tax (15% bracket): $60

Professional player: You play daily and earn $35,000 CAD.

• Business income: $35,000
• Expenses: $5,000 (Axies, computer, etc.)
• Net profit: $30,000
• Report on T2125
• Subject to income tax + CPP

Referral Bonuses and Promotional Rewards

Exchange Referral Programs

Many exchanges offer crypto for referring new users:

• Coinbase referral rewards
• Binance referral commissions
• Kraken referral bonuses
• Newton referral rewards

Tax Treatment

• Other income or business income
• Taxable at FMV when received
• Report on Line 13000 (other) or T2125 (if business)
• Cost basis = income value

How to Report on Tax Return

T4 Slip (Employment Income)

If you receive crypto as an employee:

• Employer issues T4 with CAD value
• Box 14: Employment income (includes crypto value)
• Report on Line 10100 of tax return

T2125 Form (Business Income)

If you have business income from crypto:

1. Complete Form T2125 (Statement of Business or Professional Activities)
2. Enter business details and industry code
3. Calculate gross income (all crypto received, valued in CAD)
4. Deduct allowable expenses
5. Calculate net business income
6. Transfer to tax return Line 13500 or relevant line

Schedule 1 (Other Income)

For miscellaneous income (small airdrops, referrals, learn-to-earn):

• Report on Line 13000 (Other income)
• Include description and amount
• Total flows to Line 15000 (total income)

Cost Basis After Receiving Income

When you receive crypto as income, your cost basis equals the fair market value at receipt. This prevents double taxation.

Example: Complete Tax Cycle

Step 1: Receive Income

• March 1: Freelance payment of 2 ETH when ETH = $4,000 CAD
• Business income: 2 × $4,000 = $8,000
• Cost basis: $8,000 (or $4,000/ETH)

Step 2: Sell Later

• July 1: Sell 2 ETH when ETH = $4,500 CAD
• Proceeds: 2 × $4,500 = $9,000
• Cost basis: $8,000
• Capital gain: $9,000 - $8,000 = $1,000
• Taxable capital gain: $1,000 × 50% = $500
• Tax (20.5% bracket): $500 × 20.5% = $102.50

Example Scenarios with Calculations

Scenario 1: Crypto Salary Employee

You work for a tech company paying $70,000 annual salary, 25% in Bitcoin.

• Cash salary: $52,500
• BTC salary: $17,500
• Total gross: $70,000 (shown on T4)
• Federal tax:
  • First $55,867 @ 15% = $8,380
  • Remaining $14,133 @ 20.5% = $2,897
  • Total: $11,277
• CPP (employee): $3,868
• EI: $1,049
• Provincial tax (varies): ~$4,000
• Total deductions: ~$20,194

Scenario 2: Freelance Blockchain Developer

Self-employed earning $120,000 in crypto payments.

• Gross business income: $120,000
• Business expenses: $25,000
• Net business income: $95,000
• Federal tax:
  • First $55,867 @ 15% = $8,380
  • Next $55,866 @ 20.5% = $11,452
  • Total: $19,832
• CPP (self-employed): $7,735
• Provincial tax: ~$7,500
• Total tax/CPP: ~$35,067

Scenario 3: Mixed Crypto Income

You have multiple crypto income sources in 2024:

Record Keeping Requirements

CRA Requirements

The CRA requires you to keep records for 6 years from the end of the tax year.

What to Track

• Date and time of each receipt
• Type of income (employment, business, other)
• Amount received (in crypto)
• Fair market value in CAD at receipt
• Source (employer, client, protocol, exchange)
• Purpose (service provided, employment duties, etc.)
• Exchange rate used
• Wallet addresses

Documentation to Keep

• Invoices and contracts
• T4 slips from employers
• Wallet transaction history
• Exchange statements and reports
• Screenshots of airdrops, earn programs, referrals
• Price data (CoinGecko, CoinMarketCap, etc.)
• Business expense receipts

Tools for Tracking

• Koinly - Excellent Canadian tax reports
• CoinTracker - Good for income tracking
• CryptoTaxCalculator - CRA-compliant reports
• TokenTax - Great for complex scenarios

Common Mistakes to Avoid

1. Treating all crypto gains as capital gains: Income is 100% taxable, not 50%
2. Not reporting crypto income: All income must be reported to CRA
3. Using wrong form: Use T2125 for business, not just Line 13000
4. Forgetting CPP contributions: Self-employed must pay both portions
5. Not tracking cost basis: Cost basis = income value
6. Wrong exchange rate: Use rate at time of receipt
7. Missing expense deductions: Track all business expenses
8. Not keeping records for 6 years: CRA can audit
9. Ignoring small amounts: All income is taxable
10. Not getting professional help: Complex situations need a crypto tax accountant

FAQs

Is all crypto income taxable in Canada?

Yes. All cryptocurrency received as payment, compensation, or reward is taxable income at fair market value when received.

Do I pay income tax or capital gains tax on crypto?

Income tax (100% taxable) when you receive crypto as income. Capital gains tax (50% inclusion rate) when you dispose of crypto you already own.

Are airdrops taxable in Canada?

Service/bounty airdrops are taxable as income. Pure promotional airdrops may not be immediate income (cost basis $0), but CRA hasn't clarified. Conservative approach: report as income.

Do I need to file T2125 for crypto income?

Yes, if you have business income from crypto (freelancing, trading as business, mining). Use T2125 to report income and deduct expenses.

Can I deduct crypto losses from income?

No. Capital losses can only offset capital gains. If you're trading as a business, business losses can reduce business income.

Do I owe CPP on crypto income?

Yes, if it's business income or employment income. Other income (airdrops, referrals) doesn't require CPP.

What if I don't report crypto income?

CRA can assess penalties (50% of tax owing) and interest for failure to report. Canadian exchanges report to CRA, so unreported income can be detected.

How do I value crypto with no CAD market?

Convert USD price to CAD using Bank of Canada exchange rate, or use a reasonable valuation method and document it.

Can my employer pay me entirely in crypto?

Yes, but they must value it in CAD, withhold taxes, and issue a T4. Check provincial employment standards - some provinces require minimum wage in Canadian currency.

What about staking rewards?

CRA hasn't issued specific guidance. Conservative approach: treat as business or other income. Some argue it could be capital gains when sold. Consult a crypto tax professional.

Tools & Resources

Crypto Tax Software

• Koinly - Best for Canadian taxes, CRA-compliant
• CryptoTaxCalculator - Excellent Canadian support
• CoinTracker - Good income tracking
• TokenTax - Complex scenarios
• ZenLedger - Affordable Canadian option

CRA Resources

• CRA Digital Currency Guidance
• CRA Interpretation Bulletin on Securities
• Tax Package and Forms

Final Thoughts

Cryptocurrency income in Canada is taxed at full ordinary income rates (not the preferential capital gains rate). The distinction between employment income, business income, and other income matters for reporting and CPP obligations.

Key principles:

• 100% taxable as income when received
• Cost basis = income value (prevents double tax)
• Business income requires T2125 and CPP
• Employment income reported on T4
• Keep records for 6 years

Most Canadians earning crypto income will benefit from crypto tax software like Koinly to automate tracking and generate CRA-compliant reports. Self-employed individuals with significant crypto income should work with a Canadian crypto tax accountant to optimize deductions and ensure compliance.