All About Estates

Crypto assets – Canadian or foreign – it matters!

Crypto assets are intangible digital assets that exist on a decentralized network through distributed ledger technology (DLT) – such as blockchain. A distributed ledger is a type of database that stores electronic records shared and replicated across many locations in numerous countries and maintained by a peer-to-peer world-wide decentralized network. Therefore, the crypto asset is not exclusively situated in any particular country making it difficult for the taxpayer and professionals alike to determine if it is a Canadian or Foreign asset.  As a result, the determination of whether or not the crypto asset is a specified foreign property (SFP) for the purposes of self-reporting on the T1135 Foreign Income Verification Statement is not an easy task.

Canada Revenue Agency

The Canada Revenue Agency (CRA) has stated that crypto assets are funds or intangible property that would be a specified foreign property (SFP) if situated, deposited or held outside Canada[i].  This position held by the CRA lacks guidance for professionals on how to determine where crypto assets are actually situated, deposited or held.  Given the decentralized network that gives birth to a particular crypto asset, it is difficult to ascertain if that asset should be categorized as Canadian or foreign.

This lack of guidance from the CRA has placed taxpayers owning crypto assets in a precarious position when faced with the possibility of non-compliance penalties for failure to file a T1135.  However, this failure to file is only relevant if the crypto asset is actually a SFP, which means it must be situated, deposited or held outside Canada and the aggregate SFP exceeds the $100,000 threshold (at cost).

Crypto and SFP

Triple A, a Singapore company dedicated to cryptocurrency and blockchain technology, estimates that 1.2 million Canadian’s currently own cryptocurrency.  As this number will undoubtedly continue to grow, the likelihood of estate administrators finding themselves in a precarious position will also grow.

Imagine you are the administrator of a large estate that holds $1,000,000 in bitcoin. This estate has no other foreign assets leaving the requirement to file a T1135 contingent on the SFP determination of the bitcoin.  It is important for the administrator to understand the potential consequences of making a determination.

Determination that the crypto asset is a SFP:

  • If the decedent held the bitcoin for a number of years, then the determination made by the administrator to classify the bitcoin as a SFP could result in potential non-compliance penalties for all prior years, which may require a formal voluntary disclosure to the CRA; and
  • Potential extension of normal reassessment period under paragraph 152(4)(b.2) of the Income Tax Act (ITA) by three years for late or unreported SFP (T1135) subjecting previously filed tax returns to a potentially extended reassessment period.

Determination that crypto asset is not a SFP:

  • The CRA may disagree with this determination resulting in the potential for non-compliance penalties;
  • There is no legislative due diligence defence to avoid the non-compliance penalties assessed by the CRA; and
  • A taxpayer exercising reasonable judgement based on insufficient guidance provided by the Department of Finance or the CRA could potentially rely on a judicial due diligence defence.

The administrator’s decision

Where does this leave the administrator when exercising their fiduciary duties to the estate? It will be prudent for the administrator to seek professional advice in order to formulate a reasonably logical position.  The problem is that most professionals have not been able to formulate a reasonably logical position other than ignoring the SFP determination entirely and simply filing the T1135 to avoid potential current non-compliance penalties.  As discussed above, this cautionary position does not come consequence free.

Is there a reasonably logical position?

The Department of Finance did not contemplate crypto assets when drafting the definition of a SFP under subsection 233.3(1) of the ITA.  Either the Department of Finance needs to revise the legislation or the CRA needs to provide some guidance. In the interim, there was a 2021 article written for the Canadian Tax Foundation by William Musani and Ashvin Singh of Felesky Flynn LLP where they attempt to reconcile the world of crypto assets with the 1996 definition of a SFP[ii].  In this article, the authors take the position that the digital information stored on the distributed ledger through the blockchain is not physically situated, deposited, or held anywhere.  The authors turn to the situs of the private key as the determining factor of where such cryptocurrency is situated, deposited or held for purposes of the definition of a SFP with a focus on the geographical location of the stored private key.  Of course, the authors do recognize that crypto assets do not properly reconcile with the definition of a SFP and offer this concluding comment “The cautious approach is to report cryptocurrency holdings if the situs of the holdings is ambiguous”.

I have been researching this topic for months going down many rabbit holes, and like many other professionals, struggling with reconciling crypto assets with the definition of a SFP.  Based on my continued research, my hope is to advance even further the work done by William Musani and Ashvin Singh.  More to come soon.  Stay tuned!


[i] CRA technical interpretation 2014-056106

[ii] Tax for the Owner-Manager, CTF – October, 2021 “Foreign Property Reporting: Where is your Crypto?”, William Musani and Ashvin Singh, Felesky Flynn LLP

About John Oakey
National Tax Director for Baker Tilly Canada. John has extensive experience with Canadian corporate and personal income taxes with specialization in the areas of corporate reorganizations, estate planning, succession planning and tax compliance. He also has significant experience dealing with GST/HST issues and U.S. citizen cross-border tax reporting issues.


  1. Jen Moore

    April 5, 2022 - 1:48 pm

    This is a very important and emerging issue and is a problem for both Estate administrators and living taxpayers alike. It is very surprising that CRA has not yet provided concrete advice regarding cryptocurrency and when or whether it should be considered foreign property. This period of time where the classification is ambiguous leaves most taxpayers in a potentially precarious position. Is this something that we should be discussing with our MPs? Is trading cryptocurrency through services based in other countries (Coinbase, for example) effectively using a foreign dealer? So many questions!

    • John Oakey

      April 6, 2022 - 6:50 pm

      Thanks for your comment Jen. I think the bigger problem is that CRA can’t make the crypto square peg fit into the legislated round hole. I hope to be publishing a more formal position on this in the months to come, which will provide some much needed guidance.

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