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Published: March 2, 2022

Last Updated: March 7, 2022

What is the T1135?

The T1135 is a reporting form where Canadian resident taxpayers report to the Canada Revenue Agency any specified foreign property they own if the specified foreign property has a cumulative adjusted cost base of $100,000 CAD or more. The T1135 does not create an obligation to pay tax, however failing to file the T1135 could result in failure to file tax penalties of up to $2,500 per taxation year.

For more on the T1135, see our article CRA T1135 Forms.

T1135 and Cryptocurrency

Tax law and CRA are still in the process of “catching up” with the realties of cryptocurrencies, NFTs and other similar blockchain developments. Included in that “catch up” is determining whether taxpayers holding cryptocurrencies like Bitcoin and Ethereum have a T1135 filing requirement. There are two parts to this determination. Firstly, whether cryptocurrencies can qualify as “specified foreign property” under subsection 233.3(1) of the Income Tax Act and secondly, how to determine whether the cryptocurrency is held domestically or is considered to be a foreign asset.

Specified Foreign Property

Subsection 233.3(1) of the Income Tax Act lists a number of different categories of “specified foreign property”. In Technical Interpretation 2014-0561061E5 Specified Foreign Property, the Canada Revenue Agency determined that digital currency is “funds or intangible property” which is considered specified foreign property under category (a) of the specified foreign property definition. Though the Canada Revenue Agency’s Technical Interpretation’s are not law, there is no cause to believe the Canada Revenue Agency’s determination here is incorrect. Therefore, in the opinion of our experienced Canadian crypto tax lawyers cryptocurrency meets the definition of being specified foreign property.

Is Cryptocurrency Foreign or Domestic Property?

The T1135 is intended to give the Canada Revenue Agency information about an individual’s foreign holdings to allow the Canada Revenue Agency to track down those who may be mis-reporting tax or attempting to hide assets in foreign countries to avoid paying tax. For this reason, it applies only to foreign assets. This raises the question of how to determine whether cryptocurrency is a foreign or domestic property, especially given its intangible nature.

One consideration, according to Jamie Golombek in his article “The foreign property tax implications associated with owning cryptocurrencies”, is what kind of crypto wallet you use to store your cryptocurrency. Cryptocurrency can be stored in either a “hot” or “cold” wallet. Cold wallets or cold storage are physical devices like USBs which are not connected to the internet and store both the public and private key for your cryptocurrency. The cryptocurrency owner connects the cold wallet to a computer when he or she is ready to trade. For those using cold wallets, the location of the cryptocurrency could be said to be wherever the cold wallet itself is stored. However our view is that the location of the wallet is not determinative of the status of Cryptocurrency as not being specified foreign property. It is our view that Cryptocurrency is inherently specified foreign property regardless of where the wallet is located and regardless of whether it is a hot or cold wallet. For example, a US stock market portfolio held in a Canadian brokerage account is still specified foreign property that has to be reported.


Active Business Exemption

Specified foreign property does not include “property that is used or held exclusively in the course of carrying on an active business of the person or partnership (determined as if the person or partnership were a corporation resident in Canada)”. Those who mine and/or trade in cryptocurrency, depending on their trading activities and other surrounding factors, may be determined to be mine and/or trading as an active business. For these cryptocurrency holders, who conduct active business, their crypto holdings used as part of that business are exempt from the T1135 reporting requirement.

While using crypto as part of an active business may avoid a T1135 requirement, there will often be a higher tax paid overall. Business income is taxed on the full amount of the gain (or loss) from the sale, whereas trades on account of capital are taxed at 50% of the total gain or loss from the sale. Whether a specific cryptocurrency trader is acting on account of business or capital is a factual determination in each individual case and is one that is not often easy to make.  Our knowledgeable Canadian crypto tax lawyers typically prepare extensive memoranda analysing whether crypto transactions are on account of income, capital or both.

Pro Tax Tips: Reporting Conservatively

The ultimate question of the above discussion is “Do I report my cryptocurrency holdings on the T1135 form?”  As discussed above, whether to report cryptocurrencies on the T1135 is not a clear-cut determination. Our experienced Canadian crypto tax lawyers typically advise on a conservative approach to ensure our clients stay onside of their tax reporting obligations in the face of such uncertainty, but specific advice depends on the taxpayer’s individual situation and circumstances. We can assist in determining the correct reporting of your cryptocurrency holdings and activity, including whether you need to report business income or capital gains/losses, or file a T1135 in terms of your holdings.


"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."

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