Reporting cryptocurrency and partnership income

As investment options grow more diverse, many Canadians are exploring virtual currency like Bitcoin and Ethereum, or entering into partnerships in real estate, private equity, or business ventures. These non-traditional investments can generate capital gains and other taxable events—often in ways that differ from standard stocks or mutual funds.

This matters because the CRA considers both cryptocurrency and partnership interests to be forms of capital property. That means they may trigger capital gains or business income depending on how they’re used and disposed of. Understanding how they’re taxed helps you avoid underreporting, penalties, or missed deductions.

Virtual Currency: Capital Property or Business Inventory?

The CRA treats virtual currencies as commodities, not legal tender. Transactions involving cryptocurrency may result in:

• Capital gains, if the crypto is used for long-term investment

• Business income, if the crypto is mined, traded actively, or used in a commercial context

You must report a disposition every time you:

• Sell crypto for fiat currency (e.g., sell Bitcoin for CAD)

• Trade one crypto for another (e.g., ETH to BTC)

• Use crypto to buy goods or services

• Give crypto as a gift

What to track:

• Date of each transaction

• Fair market value (in Canadian dollars) at the time of the transaction

• Adjusted cost base (ACB) of the crypto being disposed

• Proceeds received (in crypto or fiat)

Capital Gains on Cryptocurrency

If you are not in the business of trading, most crypto transactions result in capital gains or losses.

Example:

• You purchased Ethereum for $5,000

• Later, you sell it for $8,000

• Your capital gain is $3,000, and 50% is taxable

You report the gain on Schedule 3 of your T1 return, along with other capital assets. Losses can be used to offset other gains or carried forward.

Business Income from Crypto Activity

If your crypto activity is commercial in nature, such as:

• Frequent trading

• Crypto mining or staking operations

• Accepting crypto as business revenue

Then the income may be classified as business income rather than capital gains. In this case:

• 100% of the profit is taxable

• Expenses related to the business can be deducted

• Income is reported on Form T2125 (Statement of Business Activities)

It is your responsibility to determine the nature of your activity and report it correctly.

Partnership Interests: When Gains Are Triggered

Owning a partnership interest means you hold a share in a business entity but not a corporation. A partnership is a flow-through entity, meaning:

• You pay tax on your share of income even if profits are not distributed

• Your adjusted cost base increases or decreases each year, based on your share of income, losses, and withdrawals

You trigger a capital gain or loss when:

• You sell or assign your partnership interest

• The partnership dissolves

• You are deemed to have disposed of your interest (such as by death or departure)

What to include in your ACB:

• Your original investment

• Additional capital contributions

• Share of net income reported annually (increases ACB)

• Withdrawals or losses claimed (decreases ACB)

The gain or loss is calculated by subtracting the ACB from the proceeds of disposition (what you received when leaving or selling your stake).

Crypto vs. Partnership Tax Treatment