Cryptocurrency Explained: A Simple Guide for Beginners

Barbara Britto and Evelyn Jacks

It’s tax audit season and if you’re trading in crypto currencies, rest assured, CRA is on it. So is Finance Canada. Here’s an update on what’s in the latest legislation from the April 28 Spring Economic Update, that is in first reading now, and the tax reporting issues advisors and their clients need to be up-to-speed on.

Main Types of Cryptocurrencies. Cryptocurrency is a form of digital money that exists only online. You cannot hold it like cash, but you can use it for purchases, trading, and investment. Crypto operates on blockchain technology, a decentralized digital ledger that records transactions across a global network of computers. Because no single government or financial institution controls it, the system relies on distributed verification rather than traditional oversight. That’s about to change.

There are thousands of cryptocurrencies, but most fall into a few simple categories. Bitcoin is the first and best-known cryptocurrency; Stablecoins are designed to hold a steady value, usually by being pegged to the U.S. dollar, such as USDT and USDC.         

A key feature of crypto currency is cryptography, which protects information by converting it into unreadable code. Only authorized users can access the data, making transactions secure and tamper‑resistant. Cryptography is essential to digital privacy and forms the backbone of blockchain security.

The New Legislation.  A "Stablecoin Act" was passed in March 2026, and now with Bill C-30, An Act to implement certain provisions of the spring economic update tabled in Parliament on April 28, 2026 the government is planning to engage with federally regulated financial institutions to evaluate regulatory clarity needed for stablecoins and tokenized assets. Further, it intends, amongst other things, to ban crypto ATMs, as it seems them as a primary tool for fraud and money laundering. 

Not surprising, Canada Revenue Agency (CRA) considers it an area with higher compliance risk due to its volatility, decentralized nature, and lack of traditional oversight.

The Tax Reporting. Get ready for more tax audits for those who trade in crypto currencies. In Canada, the CRA treats cryptocurrency as a commodity, like trading shares. This means that using, selling, or trading crypto can trigger taxable events. 

You may owe tax when you sell crypto for Canadian dollars, trade one coin for another, use crypto to buy goods or services, or earn crypto through mining, staking, or rewards.

Mining and staking are two ways to earn crypto without buying it. Mining uses computers to verify transactions and earn new coins, but its high-power use makes it better suited to advanced users. Staking lets users lock up crypto to support a blockchain and earn rewards, usually without specialized hardware. Both are taxable when received and selling them later may trigger capital gains or losses.

Capital Gains or Income? Most individuals’ reporting requirements will fall under capital gains tax rules. If you sell crypto for more than you paid, only 50% of the gain is taxable. For example, buying crypto for $1,000 and selling it for $1,600 results in a $600 gain, of which $300 is taxable.

But, if the activity resembles a business, such as frequent trading or operating a crypto‑related enterprise—the CRA may classify the earnings as business income, meaning 100% of the profit is taxable.

Use of Schedule 3 or T2125? In the case of capital gains reporting, crypto gains or losses are reported on Schedule 3: Capital Gains (or Losses). If the activity is considered business‑related—such as day trading, mining, or staking at scale—the profits may be treated as business income instead and are reported on Form T2125. All crypto‑related income must be reported by the April 30 tax deadline each year.

The CRA requires detailed records of all crypto transactions, including dates, values in Canadian dollars, the type of asset traded, and any fees. Exchange‑generated reports, such as those from Kraken, can help organize this information, but taxpayers remain responsible for accuracy.

How CRA is Auditing Crypto Transactions.  According to an informative post by Krishen Tax Law in Toronto, there are lots of ways CRA is detecting fraud or income misclassification in Canada:

“Exchange disclosure orders: The CRA has successfully gone to court to compel exchanges including both domestic and international platforms to release customer information. If your crypto transactions passed through a KYC-compliant exchange, your data may already be in CRA hands.”

“Transaction tracing software: Using sophisticated software, the CRA can trace crypto transactions across wallets and networks. Wallets that interact with regulated platforms or centralized services can often be linked to specific individuals.”

“International enforcement networks: Through the Joint Chiefs of Global Tax Enforcement (J5), the CRA collaborates with tax authorities around the world, sharing intelligence on offshore wallets, cross-border transactions, and crypto tax evasion schemes.”

CRA’s New Plan. In its just-released Departmental Plan for 2026-2027, CRA underscore this point as priority #7 in which it commits to “Develop a greater number of international tax evasion leads with the potential of becoming active criminal investigations and further leverage joint communications through its involvement in the Joint Chiefs of Global Tax Enforcement (J5) and partnerships with financial and intelligence sectors.”

The Bottom Line. Help your clients understand what cryptocurrency is and why it is taxable. Most important – help your clients with the documentation process not just for the 2026 tax year but for prior years, just in case of audit by the CRA.