Received a CRA Crypto Audit Letter? Here’s What to Do Next

The Canada Revenue Agency (CRA) is increasing its scrutiny of cryptocurrency investors and traders. If you’ve received a crypto audit letter, you’re not alone, and you’re not necessarily in trouble. But time is critical. Whether the CRA’s letter arrived by registered mail or My Account, this is your cue to act with precision, not panic. How you respond will shape the outcome of your audit and, potentially, your long-term tax position.

For many Canadians, the biggest challenge is making sense of crypto tax in a system that’s only recently adapted to digital assets. Unlike traditional income, cryptocurrency gains and losses don’t appear on a T4 or investment slip and the reporting rules that determine if you’re required to report them as business income or capital gains are complex and applied on a case-by-case basis. Before you report your crypto assets to the CRA or respond to a CRA audit notification, always consult a tax lawyer specializing in crypto taxation. The CRA is auditing crypto users more frequently, particularly those flagged through data-sharing agreements with exchanges or discrepancies between lifestyle and reported income.

Understand What the CRA Is Asking For

CRA audit letters related to crypto transactions usually request records related to specific wallet addresses, exchange accounts, or blockchain transactions for a given tax year. In some cases, the request spans multiple years. The agency may ask for:

• Wallet addresses and ownership confirmation

• Complete transaction histories (including trades, transfers, and swaps)

• Exchange account statements (with deposits and withdrawals)

• Records of mining or staking activity

• Invoices, receipts, and business ledgers if you operated as a crypto business

It’s crucial to read the letter in full. Note the deadlines, scope, and format for submission. Ignoring or delaying a response can result in formal reassessments or penalties.

Gather and Reconstruct Records Even If They’re Incomplete

Crypto investors often use multiple wallets and exchanges over time, some of which may no longer be accessible. The CRA understands this reality, but will expect a good-faith effort to reconstruct records. Start by:

1. Downloading CSV files and tax reports from any exchanges you used.

2. Exporting transaction logs from software wallets and block explorers.

3. Using crypto tax software to normalize data into income/gain reports.

4. Documenting any lost data with written explanations and alternative proof.

If you conducted business activities in crypto, such as NFT sales, consulting paid in tokens, or yield farming, you must account for those using proper accounting and reporting methods.

Avoid Guesswork. Hire Professional Help.

Attempting to calculate your tax position manually or respond to a CRA audit without qualified support can lead to errors, omissions, or, worse, accusations of negligence. A tax lawyer with experience in cryptocurrency can:

• Identify how each transaction should be categorized (capital vs. income)

• Distinguish between taxable events and non-taxable transfers

• Reconcile holdings across multiple platforms and wallets

• Negotiate audit terms or extensions with the CRA

• Prevent double taxation on transfers between wallets

Professional representation is especially important if you’ve previously failed to report crypto transactions, filed incorrect returns, or used offshore exchanges. These factors may raise the audit’s risk profile.

Understand the Possible Outcomes

Responding to a CRA audit doesn’t necessarily mean you’ll owe more taxes. Some audits confirm compliance and result in no change. Others lead to reassessments where:

• Gains are recalculated based on market data

• Income is recharacterized (e.g., trading as a business)

• Penalties are applied for underreporting or late filing

• Interest accrues on unpaid tax amounts

In rare cases involving large sums or willful misreporting, audits can escalate to investigations under the CRA’s criminal investigations program. Timely, accurate disclosure is the best way to reduce risk.

Final Thoughts

Receiving a CRA crypto audit letter is a serious but manageable event. Transparency, organization, and expert support are your strongest tools in responding effectively. Even if your past filings were incomplete, a proactive and structured response can mitigate the damage and potentially avoid long-term legal and financial consequences.

If you’re unsure where to start, consult a tax lawyer who specializes in crypto audits. The CRA’s expectations are growing more sophisticated, and your response should be, too.