Taxes and Bitcoin Savings Accounts

Bitcoin Savings Account Taxes CRA Canada

*For informational purposes only. This is not legal, investing, or tax advice. Please consult a professional. A Reminder that Storing your Keys with 3rd parties exposes you to Not your Keys, Not your Coins (NYKNYC) risk*

With the massive rise of Bitcoin this year, investors chasing yield, and a security and threat model to holding bitcoin that still leaves even technology professionals stymied, Bitcoin Savings Accounts have popped up that allow you to earn a reasonable return on your Bitcoin held in custodial wallets.

These services from firms like BlockFi, Ledn, Nexo, Celcius, and Crypto.com yield an average of 6% on Bitcoin deposits paid in Bitcoin. Nexo even pays out the interest to compound daily, enabled by the Streaming Money technology of Bitcoin. This however creates tax obligations you may not have considered


The Canada Revenue Agency (CRA) treats cryptocurrency like a commodity for purposes of the Income Tax Act. Any interest income that you earn (6% per annum) are to be reported as interest income on your Canadian income tax return translated from Bitcoin to CAD using the rate at the date of payment.

Then, when you withdraw from Bitcoin to CAD for personal spending, depending on the conversion rate at the time of withdrawal, you will have to calculate the capital gain/losses in CAD to be reported on your Canadian income tax return.

Effectively, you will have to keep track the Bitcoin to CAD conversion rates 1) at the time you initially convert CAD to Bitcoin and 2) at the time interest are paid. Historically, CRA accepts an annual average rate when it comes to foreign currency conversion and I suppose the same as Bitcoin will get more and more popular.

For Example


For example, say you have the following transaction:
Jan 2021: You bought 1 Bitcoin at say $46,000 CAD
Feb 2021: You received monthly interest of 0.005 Bitcoin, at which time each Bitcoin was $47,000 CAD
March 2021: You received monthly interest of 0.005 Bitcoin, at which time each Bitcoin was $48,000 CAD
Apr 2021: You withdrew 0.5 Bitcoin and convert to CAD, transferred to your personal bank account. At the time of withdrawal, each Bitcoin was $49,000 CAD.

Assuming there are no other transactions in 2021, on your 2021 T1 Personal Income Tax return, you should report:
Interest Income: $475 CAD ($235 Feb’s interest income + $240 Mar’s interest income)

Capital Gain calculation:
Proceed of Disposition: 0.5 Bitcoin x $49,000 CAD = $24,500 CAD
Tax cost base: ($46,000CAD + 235CAD + 240CAD)/1.01 Bitcoin x 0.5 Bitcoin = ($23,007 CAD)
The Capital Gain subject to tax would be $1,493 CAD.

Unfortunately, there are no way to treat as zero cost basis distribution. Also, if the Company you are depositing money into is a foreign Corporation, such as BlockFi, which is headquartered in NJ, if you invested in more than $100,000 CAD anytime during the year, you will have to report this specified foreign property on your annual T1135 schedule as part of your annual T1 submission.

Next week we’ll look at tools to help make sense of this mess.

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