Flash crypto loans generate unusual tax issues

In flash loans of cryptocurrency (which may occur in order for the borrower to arbitrage between different cryptocurrencies), the loan and its repayment occur at exactly the same time. This is because the loan advance of the cryptocurrency is contingent on the repayment occurring in the same block. Since either all of the steps are to be competed (i.e., added to the blockchain) or none, the loan and repayment simultaneously occur on such completion.

Thus, there is an issue as to whether compensation payable to the lender is deductible to the borrower under s. 20(1)(c) (if it is considered to have received the loan on capital account), given that there is no period of time over which interest could accrue.

Ian Caines, “Very-Short-Term Crypto Loans,” Canadian Tax Focus, Vol. 11, No. 2, May 2021, p.3 under s. 20(1)(c)(i).