A New Era of Wealth
Cryptocurrencies, such as Bitcoin and Ethereum, have solidified their place as a significant asset class, with over 650 million global owners in 2025 and Bitcoin recently surpassing $110,000 USD. For Canada-U.S. cross-border taxpayers, holding digital assets introduces complex tax, reporting, and valuation requirements. Non-compliance with the Canada Revenue Agency (CRA) or Internal Revenue Service (IRS) can result in substantial penalties, making informed planning essential. This guide provides a detailed examination of how cryptocurrencies are taxed, reported, and valued in Canada and the U.S., focusing on CRA and IRS regulations and foreign property reporting forms, including Canada’s T1135, the U.S.’s FBAR (FinCEN Form 114), and IRS Form 8949. This article offers targeted insights for high-net-worth clients navigating cross-border crypto investments.

How are Digital Assets Taxed in Each Country?
Canada: CRA Taxation Rules
The CRA classifies cryptocurrencies as commodities, not legal tender, per its Cryptocurrency Guide. This designation triggers tax implications for most transactions:
- Capital Gains: Selling, trading, or using cryptocurrency for goods or services constitutes a disposition, resulting in a capital gain or loss.
- Business Income: Frequent trading or activities with business intent (e.g., professional trading, or day trading) may lead the CRA to classify gains as business income, fully taxable at the individual’s marginal rate. Factors include transaction frequency and intent.
- Barter Transactions: Using cryptocurrency to pay for goods or services is treated as a barter transaction, requiring the fair market value (FMV) of the crypto at the transaction date to be reported.
- Staking and Mining: Income from staking or mining is taxable at FMV when received. Subsequent dispositions of these assets may trigger additional capital or business gains or losses.
Detailed record-keeping of transaction dates, values, and cost basis is critical. Consolidating crypto holdings on a single platform can simplify compliance.
U.S.: IRS Taxation Rules
The IRS classifies cryptocurrencies as property under Notice 2014-21, with tax implications for transactions:
- Capital Gains: Selling, exchanging, or spending cryptocurrency triggers capital gains or losses. Short-term gains (assets held one year or less) are taxed at ordinary income rates (up to 37%), while long-term gains (held over one year) are taxed at 0–20%, depending on income. The 3.8% Net Investment Income Tax (NIIT) may also be charged.
- Specific Identification: Taxpayers may use specific identification (tax lots) to select which crypto units are sold (e.g., high-cost-basis units to minimize gains), provided records are maintained. The default method is First-In, First-Out (FIFO).
- Other Income: Mining, staking, or receiving crypto as payment for services is taxable as ordinary income at FMV on the receipt date.
- Airdrops and Forks: Airdrops and hard forks may be taxable as ordinary income at FMV when the taxpayer gains “dominion and control” over the assets.
Since 2019, the IRS has increased scrutiny by including a virtual currency question on Form 1040, emphasizing the importance of full disclosure and accurate reporting. A U.S. tax return cannot be filed without answering the digital asset question.
Cross-Border Tax Considerations
The Canada-U.S. Tax Treaty does not specifically address cryptocurrencies, but it does provide sourcing rules and the availability of foreign tax credits for business income and capital gains. Individuals with cross-border activity need to comply with both CRA and IRS regulations, which may result in dual tax obligations. To navigate these complexities, consulting a cross-border tax advisor is strongly recommended.
How are Digital Assets Reported in Each Country?
Canada: Reporting Requirements
Cryptocurrency transactions must be reported on Canadian tax filings, with additional requirements for foreign holdings:
- Tax Return: Capital gains or losses are reported on Schedule 3 of the T1 General. Business income from crypto activities is reported on Form T2125 ‘Statement of Business or Professional Activities’. If you have other business or rental activities, revenues received, and expenses paid by crypto-assets will show up on those schedules using FMV at the time of the transaction. If you are in the business of trading and/or mining crypto-assets, the normal rules apply regarding business expenses and capital cost allowance. GST may or may not apply based on the specific facts and circumstances.
- Form T1135 (Foreign Income Verification Statement): Canadian residents must file T1135 if the total cost of specified foreign property, including crypto held on foreign exchanges (e.g., U.S.-based Coinbase or Kraken), exceeds CAD $100,000 at any point during the year. The form requires details on asset type, country (based on the exchange’s jurisdiction), maximum cost, and year-end cost. Canadian exchanges (e.g., Bitbuy, Coinsquare) are exempt as they are Canadian-situs. Penalties for late or non-filing are $25 per day up to a maximum of $2,500, with additional fines for gross negligence.
- Record-Keeping: The CRA requires comprehensive records, including transaction dates, values, wallet addresses, and counterparties.
U.S.: Reporting Requirements
U.S. taxpayers face multiple reporting obligations for crypto holdings:
- Form 8949 and Schedule D: All crypto sales, trades, or dispositions are reported on Form 8949, with totals carried to Schedule D of Form 1040. Details include date acquired, date sold, proceeds, and cost basis, all in USD.
- Ordinary Income: Mining, staking, or airdrop income is reported, valued at FMV, on Schedule C, ‘Profit or Loss From Business’ if you are deducting expenses, or directly on Schedule 1 without deductions, as other income.
- FBAR (FinCEN Form 114): U.S. persons with foreign financial accounts, potentially including crypto wallets or accounts on Canadian exchanges (e.g., Bitbuy), exceeding $10,000 USD in aggregate value must file FBAR electronically via the BSA E-Filing System. To determine if you are required to file, first determine the maximum values of each of your foreign accounts during the tax year, translate those maximum values into USD using the spot rate at the end of the year, and add them together. If the result is $10,000 or more, you must file. Penalties start at $10,000 for non-willful violations.
- Form 8938 (FATCA): Required for aggregate specified foreign financial assets above $50,000 (single filers in the U.S.) or $200,000 (living abroad). Crypto on foreign exchanges qualifies, with penalties starting at $10,000 for non-filing.
- Record-Keeping: The IRS mandates detailed records of cost basis, sale price, dates, and exchange rates, all in USD using the exchange rate at the date of the transaction.
Cross-Border Reporting Obligations
Cross-border residents may need to file both T1135 and FBAR/Form 8938, depending on residency and asset locations. For example, a U.S. citizen in Canada with crypto on a U.S. exchange may require T1135 (if costs exceed CAD $100,000) and will file FBAR (if values on non-U.S. platforms exceed $10,000 USD). Coordinating these filings demands meticulous record-keeping to ensure compliance.
Valuation of Cryptocurrency Assets
Canada: CRA Valuation Methods
The CRA requires FMV in Canadian dollars for all transactions:
- FMV Determination: Use prices from reputable exchanges or an average across multiple platforms. Less liquid assets may require professional valuation.
- Cost Basis: The average adjusted cost base (ACB) method adds the cost of all newly acquired units with the ACB of units already held and calculates a new average ACB.
- Proceeds of Disposition: Report the FMV in CAD at the time of sale or exchange, using the Bank of Canada’s exchange rates for foreign currency conversions.
U.S.: IRS Valuation Methods
The IRS uses FMV in U.S. dollars:
- FMV Determination: Source FMV from reputable exchanges or blockchain explorers, maintaining consistency across transactions.
- Cost Basis: Use specific tax lot identification or FIFO. Specific identification requires detailed records to select units sold. FIFO is the default method.
- Proceeds of Disposition: Report the USD value at the time of sale or exchange, using reliable and consistent exchange rates.
Cross-Border Valuation Requirements
Cross-border residents must report FMV in both CAD (for CRA) and USD (for IRS), converting values using the exchange rate at the transaction date. Using Canadian exchanges (e.g., Bitbuy) can simplify reporting by keeping transactions in CAD, but U.S. exchange users must record CAD equivalents for CRA filings. Volatility in crypto prices and exchange rates necessitates precise documentation.
CRA and IRS Enforcement
The CRA employs exchange data and blockchain analytics to identify unreported crypto transactions, conducting targeted audits. Non-compliance, such as failing to report income or file T1135, incurs penalties, including daily fines and interest for gross negligence.
The IRS has also stepped-up enforcement efforts. Since 2019, the inclusion of a virtual currency question on Form 1040’s signals increased scrutiny in this area. The IRS has issued John Doe summonses to cryptocurrency exchanges (e.g., Coinbase), demonstrating the IRS’s focus on compliance. Penalties for failing to file FBAR or Form 8938 start at $10,000, with higher fines for willful violations.
Foreign Property Reporting: T1135, FBAR, and Form 8938
The following table summarizes key reporting forms:
Form | Country | Who Must File | What to Report | Crypto Applicability |
T1135 | Canada | Canadian residents with >$100,000 CAD in foreign property | Type, country, cost of foreign assets | Yes, for crypto on foreign exchanges |
FBAR | U.S. | U.S. persons with >$10,000 USD in foreign financial accounts | Foreign account details | Possibly, if crypto is in foreign wallets/exchanges* |
Form 8938 | U.S. | Anyone with specified foreign assets over the threshold | Asset type, location and maximum value | Yes, for all foreign crypto holdings |
*Note: The IRS has not definitively classified all foreign crypto accounts as “financial accounts” for FBAR, but conservative practice recommends reporting if thresholds are met.
Practical Considerations for Cross-Border Taxpayers
To manage crypto holdings effectively across Canada and the U.S., consider the following:
- Detailed Record-Keeping: Maintain comprehensive records of all transactions, including dates, values, wallet addresses, exchange rates, and proceeds, in both CAD and USD to meet CRA and IRS requirements.
- Use a Crypto Wallet/Storage: Whenever possible, avoid holding your crypto assets on exchanges. Storing assets off-exchange reduces the risk of your brokerage account being hacked and your cryptocurrencies being stolen. There are two main types of wallets: cold and hot storage.
- Cold storage (such as Tangem Wallet) offers the highest level of security and is ideal for long-term holding. This typically involves storing your crypto on a physical device, like a USB drive, which should be kept in a secure location such as a safety deposit box or safe.
- Hot storage (such as Exodus) provides more convenience and easier access for frequent transactions but is less secure since your assets are stored online and potentially exposed to cyber threats.
- Minimize Number of Transactions: Reduce trading frequency to simplify record-keeping and avoid CRA reclassification of gains as business income, which increases tax liability as business income is fully – not 50% – taxable.
- Consult a Cross-Border Tax Advisor: Engage a professional familiar with the Canada-U.S. Tax Treaty and crypto regulations to optimize tax outcomes and ensure compliance.
- Leverage Tax Software: Use tools like CoinTracker or Koinly to track transactions and generate reports compatible with CRA and IRS filings.
- Plan for Dual Tax Compliance: Coordinate filings to avoid double taxation, utilizing foreign tax credits and the Canada-U.S. Tax Treaty where applicable.
Navigating Cross-border Crypto Complexity
While cryptocurrencies present compelling opportunities, Canada-U.S. residents must navigate a challenging landscape of tax, reporting, and valuation requirements. Understanding the differences between CRA and IRS rules, staying current with forms like T1135, FBAR, and Form 8949, and implementing proactive strategies are essential for maximizing digital asset potential while remaining compliant. At Cardinal Point Wealth, we specialize in guiding clients through these cross-border complexities, helping you make informed, tax-efficient decisions. Connect with one of our Wealth Advisors to ensure your crypto journey is secure, compliant, and aligned with your financial goals.