Canada’s Crypto Tax Enforcement Faces Growing Hurdles Despite Rising Audit Recoveries

Key Points

• The Canada Revenue Agency (CRA) has asked Federal Court to help identify crypto users suspected of tax evasion

• About 15% of Canadian crypto users fail to file taxes on time, and 30% of filers are considered high-risk

• CRA crypto audits have recovered nearly $100 million in unpaid taxes over three years

• Only five criminal crypto investigations have launched since 2020, with no charges filed yet

• FINTRAC recently issued major penalties against offshore crypto firms, now under court challenge

Engaging Introduction

Canada’s efforts to clamp down on crypto-related tax evasion and illicit financing are showing financial results—but progress on enforcement remains slow and legally complex. A new Federal Court filing by the Canada Revenue Agency highlights how anonymity, offshore platforms, and limited investigative capacity continue to delay broader accountability in the fast-growing digital asset sector.

CRA Turns to Federal Court Over Crypto Tax Concerns

The CRA recently filed an application in Federal Court tied to a Vancouver-based cryptocurrency company, citing growing concern that taxpayers are using digital assets to sidestep income tax rules.

In a sworn affidavit, the agency warned that cryptocurrencies and non-fungible tokens (NFTs) are increasingly being used to hide income due to the difficulty of tracing anonymous blockchain transactions. The CRA’s top audit officials acknowledged that identifying crypto users remains one of their biggest enforcement obstacles.

Dapper Labs Case Highlights Enforcement Challenges

As part of its broader investigation strategy, the CRA sought to obtain identifying information for approximately 18,000 customers from Dapper Labs Inc., a major NFT company. After negotiations, the request was narrowed to 2,500 users.

This case represents only the second time a Canadian court has ordered a crypto firm to turn over user identities for a tax investigation—underscoring how rare and legally complicated such actions remain.

Compliance Gaps Widen as Crypto Usage Grows

CRA data shows that compliance issues are widespread among crypto users:

• Roughly 15% of Canadian taxpayers using crypto platforms fail to file on time

• About 30% of those who do file are classified as high-risk for non-compliance

The agency also noted that crypto adoption surged during the COVID-19 pandemic. That expansion, combined with transaction anonymity and decentralized platforms, has made accurate enforcement significantly more difficult.

Audit Results vs. Criminal Investigations

To manage the growing workload, the CRA currently assigns 35 specialized auditors to digital asset cases, overseeing more than 230 active investigations nationwide.

Over the past three years, those audits have generated approximately $100 million in recovered tax revenue. However, criminal enforcement has lagged. Since 2020, the CRA has launched only five criminal investigations tied to crypto activity. As of March 2025, four remain open, and no criminal charges have been laid.

Expert View: Strong Rules, Limited Enforcement Power

Jessica Davis, a specialist in illicit finance, described the recovered $100 million as a meaningful result—but cautioned that enforcement capacity remains stretched.

She emphasized that while Canada has a solid regulatory framework, financial crime resources are often redirected to other national priorities, limiting how aggressively crypto-related investigations can move forward. Even without criminal charges so far, she noted that awareness of crypto tax obligations is clearly increasing across the sector.

FINTRAC Issues Major Penalties to Offshore Crypto Firms

Canada’s anti-money laundering agency, FINTRAC, has also stepped up enforcement this year with substantial penalties against overseas crypto companies:

• Nearly $177 million fined against Xeltox Enterprises Ltd.

• More than $19.5 million against Peken Global Ltd., which operates as KuCoin

Neither company maintains active operations in Canada, and both are currently challenging the penalties in Federal Court.

Why This Matters for Canadian Taxpayers

As crypto assets move further into mainstream finance, enforcement gaps pose risks to the tax system’s fairness. Traditional taxpayers shoulder the burden when digital assets are used to hide income, while regulators struggle with jurisdictional limits, privacy protections, and technological complexity.

The growing scale of recovered revenue suggests enforcement is becoming more effective—but the slow pace of criminal accountability raises concerns about long-term deterrence.

What Happens Next?

Canada’s crypto tax crackdown is expected to continue expanding through court-ordered disclosures, specialized audits, and tougher compliance penalties. However, legal delays and limited enforcement resources are likely to keep progress uneven.

With more court challenges pending and crypto adoption still rising, the next phase of Canada’s digital asset regulation will test whether financial oversight can keep pace with technology.