Cryptocurrency taxation in Canada has quietly become one of the highest-risk areas in the tax system.
Markets are volatile. Exchanges fail. Regulators are watching closely. And when significant losses occur, the Canada Revenue Agency often steps in with a reassessment that can dramatically limit tax relief.
That is exactly what happened in Amicarelli v. The King, a recent Tax Court of Canada decision that now stands as one of the most important cases on how cryptocurrency losses are treated under Canadian tax law.
If you trade crypto, advise crypto clients, or deal with CRA audits involving digital assets, this case matters.
The Core Problem: Capital Loss or Business Loss?
When Canadians suffer cryptocurrency losses, especially due to exchange failures or fraud, the tax outcome often turns on a single question:
Was this a capital loss or a business loss?
The distinction is not academic. Capital losses are generally deductible only against capital gains. Business losses, also called non-capital losses, can be deducted against other sources of income like employment, business, or investment income.
In Amicarelli, the taxpayer lost more than $500,000 after cryptocurrency held on an exchange disappeared. The CRA reassessed the loss as a capital loss, severely restricting the deduction. The taxpayer pushed back, arguing that her cryptocurrency trading activity amounted to a business.
The Tax Court had to decide which side was right.
How the Court Approached the Analysis
The Court did not focus on how the taxpayer described herself or how the CRA labeled the activity. Instead, it applied long-standing principles from cases like Stewart v. Canada, which make one thing clear:
Tax treatment follows facts, not labels.
The Court examined the taxpayer’s actual conduct, including:
A clear intention to earn profit from cryptocurrency trading
Regular and systematic Bitcoin purchases
Daily monitoring of cryptocurrency markets
Significant time devoted to managing digital assets
Use of substantial personal and borrowed funds
This was not passive investing. It was organized, deliberate, and commercial in nature.
Based on the evidence, the Court concluded that the taxpayer was carrying on a business. The loss arose in the course of that business, even though it resulted from exchange misconduct rather than ordinary market movements.
The result: the loss was properly classified as a non-capital business loss, deductible against other income.
Why This Decision Matters for Crypto Taxpayers
The implications of Amicarelli v. The King go well beyond one taxpayer.
First, it confirms that active, profit-driven cryptocurrency trading can be treated as a business under Canadian tax law. That opens the door to non-capital loss deductions when things go wrong.
Second, it shows that losses caused by exchange failures or fraud are not automatically capital losses. If the trading activity itself is a business, those losses may still be deductible.
Third, the same analytical framework applies to other digital assets. DeFi tokens, NFTs, and similar assets are not exempt from these principles. What matters is how the activity is carried on.
Finally, the case highlights how aggressively CRA may challenge large crypto losses. Classification disputes are common, especially when documentation is weak or trading activity is poorly explained.
Documentation Is Not Optional
One of the quiet lessons in Amicarelli is that evidence wins cases.
Taxpayers facing CRA audits or reassessments need to be able to demonstrate business-like conduct. That means maintaining:
Detailed transaction histories
Records of funding sources, including loans
Trading strategies and decision-making processes
Evidence of time and effort devoted to crypto activity
Without this, even legitimate business losses can be reclassified.
Practical Tax Tips for Managing Crypto Losses
For Canadians active in cryptocurrency markets, a few proactive steps can reduce risk:
Keep comprehensive and organized records of all crypto transactions
Seek early advice if your trading activity is systematic or high volume
Avoid concentration risk by spreading holdings across exchanges
Consider whether a corporate structure makes sense for your activity
Coordinate cross-border reporting carefully if assets or exchanges are outside Canada
The Bigger Takeaway
Amicarelli v. The King confirms a principle that applies far beyond cryptocurrency: tax outcomes follow economic reality.
When crypto trading looks like a business, behaves like a business, and is run like a business, the tax system will often treat it as one. That can be a benefit when losses occur, but it also brings higher scrutiny and higher expectations.
As CRA enforcement around digital assets continues to intensify, proactive planning, strong documentation, and early professional advice are no longer optional.
They are the difference between a deductible loss and an expensive reassessment.