Cryptocurrency and fiscal considerations: an analysis of Amicarelli v. The King

Par Nadim Paul Fares, Avocat et Farid Firouzbakhsh-Azimi, Étudiant

Introduction

The emergence of cryptocurrency has transformed global financial markets and introduced new complexities into tax law. The rapid rise of digital asset trading activities raises new challenges for courts and tax authorities who are tasked with applying traditional fiscal principles to an evolving and highly volatile asset class. Amicarelli v. The King, 2025 TCC 185 represents a significant Canadian decision addressing how cryptocurrency activities should be characterized for tax purposes. The case examines whether substantial losses arising from Bitcoin trading should be treated as a capital loss or a business loss under the Income Tax Act. Through this decision, the Tax Court of Canada provides important guidance on the treatment of digital assets, the definition of “business” in the crypto context, and the broader fiscal implications of participation in emerging digital markets.

Context

In Amicarelli v. The King, 2025 TCC 185, the Tax Court of Canada (TCC) was confronted with the fiscal characterization of cryptocurrencies.

Jeanette Amicarelli, a full-time Air Canada employee residing in Ontario, began investing significant capital in a QuadrigaCX account in 2017 during the rapid appreciation and surge of Bitcoin in an attempt to make a profit to fund an early retirement. The appellant drew on a combination of personal savings and borrowed funds by withdrawing substantial amounts from a Registered Retirement Savings Plan (RRSP), taking advances on credit cards, and even obtaining a second mortgage on her home at a high interest rate[1]. Amicarelli engaged in regular and systematic Bitcoin purchasing and by late 2017 her account balance was worth more than 2 million CAD before abruptly falling to zero[2].

The disappearance of funds was initially attributed to a potential security breach or internal malfeasance within QuadrigaCX. In June 2020, the Ontario Securities Commission (OSC) released a report concluding that the collapse of QuadrigaCX was attributable to fraud and mismanagement[3]. The report further found that the co-founder and CEO of QuadrigaCX, Gerald Cotten, was likely a fraudster who misused client assets[4].

Amicarelli filed a T1 income tax return declaring a 505,142$ CAD (later corrected to 473,241.74$ CAD) non-capital loss resulting from the disappearance of her Bitcoin investments, which was denied by the Canada Revenue Agency on the basis that the loss was not on income account and therefore did not qualify as a business loss. Amicarelli filed for appeal to the TCC by arguing that her cryptocurrency trading activity amounted to a business and that the loss should therefore be treated as a non-capital loss deductible against her other sources of income.

Decision

In Amicarelli v. The King, 2025 TCC 185, the Tax Court of Canada first presented a definition of Bitcoin:

Bitcoin is an established cryptocurrency. It subsists on a blockchain, which is a decentralized and encrypted ledger of information. Bitcoin is intangible insofar as it exists in a virtual, digital domain. While Bitcoin are fungible, they are identifiable. Bitcoin may be bought, sold, exchanged and lent, and can even be stolen.

Bitcoin does not generate interest or dividends. It is a medium of exchange and temporary store of value. Bitcoin is property within the broad definition set out in s. 248(1)[5].

As such, any economic gain from Bitcoin arises exclusively from price appreciation or from transactional use. Bitcoin’s characterization as a property likens it to a commodity like gold more than it does income-producing securities such as stocks or dividends. This means that buying, selling, or exchanging Bitcoin can trigger capital gains or business income depending on the nature and purpose of the activity.

The TCC then examined the appropriate tax treatment of the loss, specifically whether it should be characterized as income or capital. The TCC noted that there is no evidence that the Appellant used her QuadrigaCX account as a hedge or safe haven for crypto assets nor for personal transactions[6]. The Appellant argued that her crypto activity amounted to a commercial trading operation described as an “adventure in the nature of trade” within the non-exhaustive definition of a business under s. 248(1) of the Income Tax Act (ITA)[7]. 

The Court agreed that her conduct went beyond mere speculation or personal investment and instead resembled trading activity undertaken with a clear profit-making intention. The TCC applied the principles adopted in Friesen v. Canada, [1995] 3 SCR 103 as well as the list of factors presented in the Interpretation Bulletin IT-459 (Adventure or Concern in the Nature of Trade) and IT-218R (Profit, Capital Gains and Losses from the Sale of Real Estate) to determine whether there was an adventure in the nature of trade that involves a “scheme for profit making”.

In Friesen, the Supreme Court confirmed that a transaction undertaken with a profit-making intention and commercial risk may constitute an “adventure in the nature of trade”. This judicial concept serves to distinguish transactions that constitute business income from those that are capital in nature[8]. The first requirement for this characterization is the existence of a “scheme for profit-making”, meaning that the taxpayer must have a legitimate intention to earn a profit from the transaction[9]. Importantly, the Supreme Court also confirmed that property held in such a venture may be characterized as inventory under s. 10(1) ITA, thereby subjecting it to business income treatment rather than capital gains treatment[10]. The Friesen case also illustrates that fundamental tax principles are not dependent on technological change and that emerging asset classes remain subject to traditional criteria despite evolving forms of wealth. In fact, the distinction between amounts of income nature or capital nature was imported into the Canadian tax system from British common law developed in the context of an agricultural economy, where income was understood as the “fruits” of a productive source[11]. Accordingly, new assets such as cryptocurrencies must still be assessed under the same established principles governing the distinction between income and capital.

The principles established in Friesen, IT-459, and IT-218R analyse the taxpayer’s intention, actual conduct, connection to business, financing and holding period, as well as the nature of the property. The criteria are analysed flexibly and the weight given to a particular principle varies in the circumstances[12].

In Amicarelli’s case, the appellant testified that her intention was to earn a rapid profit through a realistic and feasible strategy of capitalizing on Bitcoin’s appreciation with her actual conduct translating to regular purchases and routine monitoring of accounts, akin to the activities of a trader or dealer devoting time and effort[13]. Furthermore, there were no connections to Amicarelli’s regular job and her QuadrigaCX account activities and she engaged in optimistic behaviours to enjoy positive financial outcomes through aggressive credit financing for short-term profit seeking[14]. Finally, the TCC observed that Bitcoin’s nature is inherently speculative and does not produce passive income such as interest, dividends, royalties or distributions[15], making resale for profit its primary economic function. The Court also noted that asset loss due to theft or fraud is a business risk without prohibition on the deduction of losses[16]. Amicarelli’s systematic and profit-driven Bitcoin trading thus bore the indicia of commercial activity rather than passive long-term investment[17].

For these reasons, the TCC concluded that Amicarelli’s activities fall within the statutory definition of “business” in s. 248(1) ITA and her losses should be characterized a non-capital loss allowing full deductibility against other income sources.

Comments

The Amicarelli case highlights the importance of capital versus income characterization in Canadian tax law.

Section 3 of the Income Tax Act establishes the framework for computing a taxpayer’s income for a taxation year and recognizes two main categories: ‘ordinary income’ from employment, business, and property under paragraph 3(a), and income from capital sources under paragraph 3(b)[18].

Capital gains are taxable at 50% and benefit from preferential inclusion while capital losses may only be used for offsetting capital gains and not other sources of income. On the other hand, business income is fully taxable, but business losses (non-capital losses) may be deducted against other sources of income, such as employment income, and carried over for previous or future taxation years for advantageous tax benefits. Characterizing the activity as a business allowed Amicarelli to deduct the full $473,241.74 loss against other income and provide broader fiscal relief than capital treatment would have allowed.

Beyond immediate fiscal implications, the decision provides a basis for general cryptocurrency taxation in Canada. The ruling delivers the TCC’s first jurisprudential definition of Bitcoin and demonstrates that traditional tax mechanisms apply to novel assets in the digital sphere. The TCC does not create a special rule for digital assets and applied longstanding tax principles concerning profit motive, commerciality, financing structure, and actual conduct to confirm that cryptocurrency is simply considered “property” within the meaning of the Income Tax Act. Accordingly, the fiscal treatment of cryptocurrency depends on economic reality rather than technological novelty. Even with the emergence of digital assets such as cryptocurrencies and tokens, courts continue to rely on existing legal categories rather than readapting tax rules to technological innovation.

The Amicarelli case also illustrates the economic consequences of volatile markets such as digital assets. Users engaged in mining operations, staking pools, NFT marketplaces, tokenized assets, or blockchain-based transactions will have to carefully assess whether their activity can be associated to a business in the eventuality of fraud or market collapse. Digital assets and trading platforms entail a level of risk, and such platforms often operate outside the purview of securities regulators, thus creating the potential for rapid gains.

Cryptocurrency ecosystems are prone to surges and dramatic collapses, often driven by speculation, social media momentum, or concentrated market actors[19]. Exchange insolvencies, hacks, and internal fraud remain recurring risks, such as the FTX scandal in late 2022 affecting more than one million users. FTX filed for bankruptcy following revelations that a substantial amount of customer funds had been improperly used or could not be accounted for, with estimates suggesting that more than 1 billion USD in client assets were missing[20]. The rise of “pump-and-dump” schemes in cryptocurrency markets also presents the extreme volatility and manipulation risks inherent in digital assets. These schemes involve artificially inflating the price of a token through coordinated hype or concentrated buying, followed by rapid sell-offs that leave investors with significant losses[21]. Operating largely outside traditional regulatory safeguards, crypto markets can experience dramatic price swings within minutes.

As cryptocurrency continues to expand in use and value, understanding the applicable tax rules in this rapidly changing ecosystem becomes increasingly important to properly manage risk and avoid unexpected financial consequences. The Amicarelli decision confirms that active profit-driven cryptocurrency trading can be treated as a business under Canadian tax law when conduct is organized and commercial in scale. As such, active traders ought to maintain comprehensive and organized records of all funding documentation, crypto transactions and evidence of active involvement to prove business-like conduct in the eventuality of disputes.

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[1] Amicarelli v. The King, 2025 TCC 185 at para 17 [Amicarelli].

[2] Ibid at para 14 and 19.

[3] Ontario Securities Commission, QuadrigaCX: A Review by Staff of the Ontario Securities Commission (14 april 2020) at 3.

[4] Ibid.

[5] Amicarelli, supra note 1 at para 5-7.

[6] Ibid at para 40.

[7] Ibid at para 42.

[8] Friesen v Canada, [1995] 3 SCR 103 at para 15.

[9] Ibid at para 16.

[10] Ibid at para 12.

[11] Ibid at para 8.

[12] Amicarelli, supra note 1 at para 45.

[13] Ibid at para 47-48.

[14] Ibid at para 55.

[15] Ibid at para 53.

[16] Ibid at para 56.

[17] Ibid at para 44.

[18] Income Tax Act, RSC 1985, c 1 (5th Supp), s 3.

[19] David Krause, “The Dangers of Cryptocurrency Hype and Deregulation: Why Oversight Matters in the Digital Asset Economy” (2025), online: <https://www.ssrn.com/abstract=5136389> at 2-3,10.

[20] David S Kerr et al, “Cryptocurrency Risks, Fraud Cases, and Financial Performance” (2023) 11:3 Risks 51, online: <https://doi.org/10.3390/risks11030051> at 5.

[21] Mohammad Javad Rajaei & Qusay H Mahmoud, “A Survey on Pump and Dump Detection in the Cryptocurrency Market Using Machine Learning” (2023) 15:8 Future Internet 267, online <https://doi.org/10.3390/fi15080267> at 4.