A Toronto, CA, professional with three decades of tax law and estate planning experience, Stuart Bollefer provides client-driven financial advice. Areas of focus for Stuart Bollefer include a knowledge of the income tax rules that impact investor decisions. These tax rules are applied by Canada Revenue Agency (CRA) in assessing reported transactions.
In the cryptocurrency sphere, one major operational change which may tax implications is the Ethereum blockchain’s September 2022 upgrade from a “proof-of-work” method of verifying transactions to a “proof-of-stake” model. This Ethereum merge represents a fundamental change in architecture for the coin and boosts transaction speeds while eliminating energy-intensive cryptocurrency mining practices.
The proof of stake model may affect the tax implication to owners of Ethereum. Owners of this cryptocurrency place tokens as collateral for the privilege of verifying transactions and having the opportunity to earn Ethereum by contributing to a network. These staking rewards are not dissimilar to how shareholders receive income distributions as dividends from corporations.
The taxation of staking rewards is not clear. Staking rewards may be considered investment income that is fully taxable by the CRA, in the same way as income from property already is. Alternatively, staking ETH might be viewed as a service provided to the blockchain network to verify transactions, and the staking reward could be business income. Each owner should seek tax advice to clarify its own tax situation.
