Cryptocurrency losses arising from exchange collapses, fraud, or misappropriation have become one of the most contentious issues in Canadian tax audits. In many cases, the Canada Revenue Agency seeks to characterize such losses as capital losses, limiting their deductibility to capital gains only.
The Tax Court of Canada’s decision in Amicarelli v. The King provides important clarification on when crypto losses may instead be treated as losses on income account.
Background of the case
The taxpayer suffered a substantial loss after cryptocurrency assets held on an exchange became inaccessible. The CRA reassessed the loss as capital in nature. The taxpayer appealed, arguing that his Bitcoin activities constituted a commercial trading operation.
The Court examined traditional indicators of business activity, including:
- intention to generate profit;
- frequency and volume of transactions;
- degree of organization and active management;
- overall commercial character of the activity.
Based on these factors, the Court concluded that the taxpayer’s activities went beyond passive investment and constituted an adventure in the nature of trade. The loss was therefore deductible as a non‑capital loss.
Why the decision is significant
This decision confirms that:
- cryptocurrency is not taxed based on its label, but on how it is used;
- exchange failures and fraud losses can qualify as business losses where commercial activity is established;
- evidence and contemporaneous documentation are critical in disputes with the CRA.
Although Amicarelli is a Tax Court decision and remains fact‑specific, it provides a valuable framework for taxpayers facing crypto‑related loss assessments.
Practical considerations for taxpayers
Taxpayers seeking income‑account treatment should be prepared to demonstrate:
- consistent trading activity rather than passive holding;
- active monitoring and execution strategy;
- records of transactions, exchange accounts, and funding sources;
- documentation supporting a profit‑oriented approach.
Early legal and tax analysis is essential. Once a filing position is taken or a reassessment is issued, correcting the characterization of a loss becomes significantly more difficult.
Final observation
Amicarelli v. The King underscores a broader principle of Canadian tax law: substance prevails over form. In the cryptocurrency context, this principle can be decisive.
Professional tax planning and dispute strategy can mean the difference between a usable deduction and a permanently trapped loss.
At Finance Business Service, we provide legal and tax support for businesses and individuals dealing with cryptocurrency and cross-border taxation. From structuring and compliance to loss analysis and tax controversy, we help clients manage risk and protect long-term value.