CRA finds that the deposit of crypto into a pooling vehicle for receipt tokens, and a subsequent exchange of the receipt tokens for underlying tokens, are dispositions

A resident individual deposited two types of crypto-assets (the “Deposited Tokens”) into liquidity pools in a crypto pooling vehicle (the “Platform”), in exchange for “Receipt Tokens”, which evidenced such deposit and could themselves be transferred, or used to claim corresponding underlying deposited assets.

The individual subsequently redeemed the Receipt Tokens for crypto-assets of the same type as the Deposited Tokens, at a time that they had appreciated in value. In the meantime, the individual received a return from the Platform (the “Rewards”) in the form of “Nativetoken,” which also could be realized upon by exchanging them through decentralized exchanges for other crypto assets. The Rewards accrued to the individual daily based on his proportion of the “underlying” tokens staked in each of the two pools.

CRA found that:

• The individual’s deposit of the Deposited Tokens into a liquidity pool on the Platform and redemption of Receipt Tokens for crypto-assets of the same type as the Deposited Tokens were “dispositions” for capital gains purposes, if those tokens had been held on capital account;
• If the tokens instead were held in a business on income account, such exchanges would be barter exchanges described in IT-490, giving rise to income on each exchange; and
• The Rewards would be included in computing the taxpayer’s income under s. 9.

Neal Armstrong. Summaries of 20 March 2024 Internal T.I. 2023-0973071I7 under s. 248(1) – disposition and s. 9 – computation of profit.