Introduction: Cryptocurrency In Your RRSP – A Tax Disaster
Waiting to happen?
Introduced in 1957, a Registered Retirement Plan (or
RRSP) allows individuals to defer taxes on the income they set
aside for retirement. You can claim tax deductions for your RRSP
Contributions and you do not pay taxes on income received within the
to plan. Taxes will apply when withdrawing funds from your RRSP. But if
You planned things right, you don't have to back off
until you reach retirement age – and fall into a lower tax bracket.
In other words, an RRSP essentially enables you to do your
tax-free retirement savings by using funds that
otherwise they would have gone to the state as taxes. You
end up paying these taxes, but you do so after several
Decades – if you are subject to lower tax rates and beyond
You have enjoyed the returns from the investments funded by
Pre-tax profit.
With cryptocurrencies like Bitcoin, Ethereum, Dash
and Litecoin vie for adoption in mainstream finance
Countryside, Canadians planning for retirement can look at
Cryptocurrency as a way to get higher returns on your nest egg.
The developments in blockchain technology are causing a
constantly growing selection of possibilities, arrangements and
Asset smart contracts, cryptocurrency liquidity mining and yield
Agriculture and Non-Fungible Tokens (NFT) to name a few. and
Canadians might be curious to combine these possibilities
the tax advantages of an RRSP.
So the question is: can you contribute cryptocurrency and others?
Blockchain-based assets in your registered retirement savings
to plan? Or is a tax disaster waiting for it?
To answer these questions, this article will first cover the
basic tax rules for registered retirement plans-in
in particular the requirement that an RRSP only
"skilled investment." The article then analyzes
whether cryptocurrency or other blockchain assets can qualify as
RRSP investments. This article concludes with professional tax tips
To Canadian taxpayers who wish to hold a qualifying cryptocurrency
Investing in their registered retirement accounts.
Registered Retirement Plans, "Qualified"
Investments "& the RRSP penalty tax
Anyone can set up a registered retirement savings plan
natural person who is resident for tax purposes in Canada. In other words, the RRSP
Owner (or RRSP pensioner) must be a natural person (as opposed to
a company or other legal person). Besides, if you don't a
You are taxable in Canada and cannot open or contribute to an RRSP.
For more information on determining your resident taxpayer status, see
see our article “Canadian Tax Residency – Matters
Residential ties are less significant for immigrants to Canada than for
Emigrant from Canada? "A person's status as a
Canadian Tax Resident is subject to several interrelated, complex taxes
Rules, and it can not only be a careful analysis
Canada's domestic tax law, but also the tax rules in a tax
Treaty between Canada and another country. Canadian tax residence
is completely different from the residence for citizenship or
Land immigrant status. Our experienced Canadian tax attorneys can
advise you on your Canadian tax resident status
and your resulting Canadian tax debt.
The first tax benefit of a registered retirement savings plan is
that the RRSP holder can deduct RRSP contributions when calculating the net income
for a tax year. The second tax benefit of being a registered
Retirement provision means that you do not pay any income or capital taxes
Profits accumulating in your RRSP.
To qualify for the RRSP deduction, you must have your
registered retirement savings plan before the annual RRSP
Meeting. Your RRSP contribution qualifies for a specific
Annual RRSP deduction only if you pay the contribution during
this year or within the first 60 days of the following year (which
usually falls on March 1st, but it's February
29th in a leap year).
Also, Canadian Income Tax Law limits the amount
that you can contribute to your RRSP every year. Your RRSP
Contribution limit for the year is the smaller of two numbers: (1)
18% of the previous year's earnings and (2) the tax
Maximum annual limit (e.g. the prescribed maximum limit for the
The 2021 tax year is $ 27,830. When you make a lifelong contribution
Exceeding your RRSP contribution area by USD 2,000 or more, you will incur
an RRSP penalty tax on the excess amount of 1% per month.
You will also need to file a special tax return showing the RRSP penalty
Tax (Form T1-OVP, "Individual tax return for RRSP, PRPP and
SPP surplus contributions "), and you can get additional
Penalty for failing to submit this statement. The penalty tax is also
Bears interest at the prescribed interest rate.
A penalty tax also applies if the RRSP does not qualify
Investment. If the registered retirement savings plan acquires a
non-qualified system or when an existing RRSP system becomes
an unqualified installation, then the RRSP holder retains an RRSP
Penalty tax of 50% of the market value of the
unqualified investment. In addition, the RRSP holder must pay taxes
on any income from the unqualified investment or on capital gains
from the sale of the unqualified investment.
In other words, only the preferential tax treatment of the RRSP
extends to the "qualified facilities" within the RRSP.
The definition of "qualified" in the Income Tax Act
Investments "includes the following:
- Money, GICs and other deposits;
- most securities that are listed on a particular stock exchange, such as
Company shares, warrants and options, and shares of
exchange traded funds and real estate investment trusts; - Mutual funds and special funds;
- Canada Savings Bonds and Provincial Savings Bonds;
- Bonds of a corporation listed on a particular share
Exchange; - Investment grade debt securities; and
- insured mortgages or mortgages.
For Canadian taxpayers who want to hold cryptocurrency,
non-fungible tokens or other blockchain-based assets in their
registered retirement accounts, the main tax issue is
whether these assets are "qualifying"
Investments. "
Make cryptocurrency, non-fungible tokens, or other blockchain
Assets constitute "qualified investments" for a
Registered Retirement Plan?
Cryptocurrencies and non-fungible tokens themselves are not
"skilled investment." As mentioned above, the
Definition of "qualified" in the Income Tax Act
Investments "essentially refers to two elements: (i) money and (ii)
Securities listed on a particular stock exchange. The CRA
takes the – legally correct – view that "digital currencies, such as e
as (B) itcoins, are not considered money that a. is issued
Government of a country and are not qualified investments "
(see Section 1.12 of the Canada Revenue Agency, Income Tax Folio
S3-F10-C1, “Qualified Systems – RRSPs, RESPs, RRIFs, RDSPs
and TFSAs ", October 1, 2018). Likewise no cryptocurrency or
The non-fungible token is itself traded as a security on a share
Exchange designated as such by the Canadian Treasury Secretary.
So cryptocurrencies and non-fungible tokens do not meet the requirements
Definition of "qualified" in the Income Tax Act
Investments "and cannot be kept in your RRSP.
But the investment market has seen a boom recently
cryptocurrency-based ETFs (or exchange-traded funds), many of which
are traded on designated stock exchanges. So while
Cryptocurrencies themselves are not "qualified"
Investments, "many of the listed cryptocurrency ETFs
are. Therefore, these cryptocurrency-based ETFs can prove to be
RRSP investment. In particular, the cryptocurrency-based ETF is met
the definition of a "qualifying investment" if the Fund
appears on a specific exchange, such as the Toronto Stock
Exchange (TSX), the New York Stock Exchange (NYSE) or one of the
other Canadian or international stock exchanges, the Canada
The Treasury Secretary has for the purposes of Canadian
Income Tax Act.
In summary, your RRSP cannot contain cryptocurrencies directly
or non-fungible tokens as these assets are not themselves
"skilled investment." However, your RRSP may contain
cryptocurrency-based ETFs or other cryptocurrency-based funds – but
only if the fund is listed on a specific stock exchange, e.g.
the Toronto Stock Exchange or the New York Stock Exchange.
Professional Tax Tips – Professional Canadian tax advice from a Canadian tax
Lawyer: Exemption from the RRSP penalty tax due to non-qualified persons
Investing in cryptocurrencies
As mentioned above, cryptocurrencies and non-fungible tokens
do not meet the definition of the Income Tax Act of
"Qualified assets" so that they are not in your
RRSP. So if your registered retirement savings plan is in place
Cryptocurrencies, non-fungible tokens or other non-qualified ones
Investment, you will receive a 50% RRSP penalty tax
the fair market value of any unqualified investment in yours
registered retirement plan.
Subsection 207.06 (2) gives the Canada Revenue Agency the
Discretion to cancel the resulting RRSP penalty tax in whole or in part
from holding unqualified assets such as cryptocurrencies or
non-fungible tokens – in your registered retirement plan.
In particular, the Canada Revenue Agency can override the RRSP penalty
tax if the rating agency deems this to be fair and just
taking into account all circumstances, including (a) whether the
(RRSP penalty tax) arose as a result of a justified error;
(b) the extent to which the deal or series of deals
which led to the (RRSP penalty tax) also led to another
Tax according to (the Income Tax Act); and (c) the extent to that
from which payments (of the registered retirement
Savings plan). "
Our experienced Canadian tax attorneys helped with this
numerous customers with applications for the cancellation of the RRSP penalty taxes
according to paragraph 207.06 (2). We can plan carefully and promptly
prepare your application for subsection 207.06 (2). A properly prepared one
Penalty tax waiver application not only increases the chances of winning
that the CRA will accept your application, but so will the
Preparation of a judicial review application to the Federal Court of Justice
the CRA should unjustifiably reject your application and refuse to cancel
Your RRSP penalty taxes.
The content of this article is intended to be general
Instructions on the subject. Expert advice should be sought
about your particular circumstances.