For active crypto traders in Canada, foreign reporting has quietly become one of the most misunderstood areas of tax compliance. Many traders assume they only need to think about capital gains or income treatment, but the Canada Revenue Agency’s foreign asset rules can apply long before a taxable event ever occurs. Understanding when crypto creates a foreign reporting obligation is no longer optional, especially as global exchanges, cross-border wallets, and foreign custodians become core parts of trading strategies.

A growing number of traders discover the T1135 requirement only after receiving a CRA review letter. That’s because the test for foreign reporting is broader than most people realize. Crypto Tax Lawyer sees this regularly: traders holding assets on offshore exchanges believe they’re compliant because they track gains, unaware that simply holding foreign-situated digital assets can trigger a separate filing obligation.

When Crypto Counts as a “Specified Foreign Property”

Canadian residents must file Form T1135 if, at any moment in the tax year, the combined cost of all specified foreign property they own is more than $100,000 (Canadian dollars). This is based on cost amount (usually adjusted cost base), not the fair market value and not just the year‑end balance.

When determining whether crypto is classified as “specified foreign property,” the key factor is the location of the custodian or the infrastructure that controls the asset. The CRA has provided limited guidance, but the emerging interpretation is that crypto held with a foreign exchange or foreign wallet provider can fall under the T1135 definition.

The reasoning is that the exchange or custodian may be considered the “holder” of the property for reporting purposes. If the custodian is outside Canada, the crypto may be treated as foreign property even though the asset doesn’t exist in a physical sense.

Self-custody changes the analysis. When a trader controls their own keys without relying on a foreign entity, the question becomes where the property is situated legally. Current interpretations often treat self-custodied crypto as not being foreign property, because there is no foreign intermediary holding or managing it. Still, traders who split assets between wallets and exchanges need to evaluate each piece separately. A mixed setup can trigger a T1135 filing even if most of the portfolio sits in a Canadian-controlled wallet.

Stablecoins add another wrinkle. Their value depends on underlying reserves, which might include foreign financial assets. That doesn’t automatically make the token itself foreign property under T1135 rules, but it does raise questions when the issuer or reserve structure is based offshore. The tax community continues to debate whether certain stablecoins could meet the definition of “specified foreign property” in edge cases. This is the kind of issue traders need guidance on from a crypto tax lawyer.

The Rising Importance of Transaction Tracing

The T1135 requires cost-basis information, income earned, and details on each category of foreign property. For traders using multiple platforms, especially ones that do not provide Canadian-friendly reporting, assembling this data can be a challenge. The accuracy of these records becomes important if the CRA reviews a filing, since inconsistencies between trading histories and foreign reporting can trigger audits.

Beyond T1135 & Additional Reporting Risks

While the T1135 is the most common foreign reporting form, it’s not the only one traders should be aware of. Some taxpayers with offshore business structures holding crypto may face T1134 filing obligations for foreign affiliates. Others using foreign trusts or cross-border lending arrangements may inadvertently create T1141 or T1142 requirements. These forms aren’t limited to wealthy structures. A simple international joint venture or a foreign-domiciled investment vehicle that acquires digital assets can shift a trader into more complex reporting territory.

Final Thoughts

Foreign reporting for crypto requires a different mindset than typical gain-and-loss calculations. It’s about tracking where assets are custodied and understanding how your trading setup interacts with cross-border rules. If your trading activity involves multiple exchanges or foreign custody, it’s worth consulting a tax lawyer specializing in Canadian crypto taxation on whether your tax position reflects the full scope of your reporting responsibilities.