Crypto Tax Guide – Insights from Block3 Finance’s CEO

Introduction:

Crypto taxation remains one of the most misunderstood and fast-evolving areas in the financial world—especially for Canadian and U.S. investors navigating the complexities of compliance in a Web3 ecosystem. In this special edition of Crypto Canadians, Block3 Finance CEO Mahad Mohamed—a seasoned tax advisor with over two decades of experience—joins the conversation to offer clarity on what investors and businesses need to know heading into 2025.

With a background spanning Canada, the U.S., and the UAE, and a deep focus on crypto taxation, Mahad walks us through essential updates, common pitfalls, and actionable strategies to stay ahead of the curve. From staking and DeFi to business reporting and international tax considerations, this guide captures the highlights of the discussion—tailored to help individuals and businesses avoid costly mistakes and optimize their crypto tax position.

Whether you’re a solo investor, a startup founder, or a growing Web3 business, this 2025 guide is designed to equip you with the tax insight you need in a rapidly evolving digital economy.

Watch the Full Podcast:

If you prefer to watch or listen to the full conversation, you can access the entire podcast episode below. It’s packed with detailed insights, real-world examples, and expert guidance directly from Block3 Finance’s CEO, Mahad Mohamed.

Click below to watch the full episode:

Key Takeaways from the 2025 Crypto Tax Podcast

Now, let’s break down the most important insights shared by Mahad Mohamed, CEO of Block3 Finance, during this episode. From foundational tax rules to real-world examples, here’s what every crypto investor and founder should know heading into 2025.

Understanding the Basics of Crypto Taxation in Canada and the U.S.

For individuals navigating the complex world of cryptocurrency, understanding the fundamentals of tax treatment is crucial. During the podcast, Mahad Mohamed—CEO of Block3 Finance—offered a concise but thorough breakdown of how crypto assets are taxed in Canada and the U.S.

In both jurisdictions, cryptocurrency is classified as property, not currency. This means that any buy, sell, or exchange of crypto assets triggers a taxable event. These events may result in capital gains or losses, or in some cases, be classified as business income if the taxpayer is considered a trader rather than an investor.

However, not all countries treat crypto the same way:
In Japan, it’s classified as miscellaneous income.
In the UK, it’s treated as a chargeable asset.
This variation makes it essential to understand the specific tax rules based on where you reside or operate.

Mahad also addressed a common misconception: “If I don’t convert my crypto to fiat, I don’t owe any tax.” This is incorrect.

Here are three key scenarios that trigger a taxable event:
Crypto-to-crypto trades (e.g., BTC to ETH or USDC to USDT)
Crypto-to-fiat conversions (e.g., selling ETH for CAD or USD)
Using crypto to purchase goods or services
 

On the other hand, simply converting fiat to crypto (the initial on-ramp) is not a taxable event. However, this transaction does create an adjusted cost base (ACB)—a critical concept in tracking gains and losses.

What If You’ve Never Filed Crypto Taxes? Here’s What You Can Do

For those who’ve been trading crypto for years but haven’t reported any of it—don’t panic. Mahad explained that there are still ways to fix the situation, depending on whether you’ve incurred gains or losses.

If you’ve incurred losses, you can amend your past tax returns going back up to seven years. Capital losses can be:
Carried back for three years.
Carried forward indefinitely for future gains (e.g., the next bull run).

If you’ve incurred gains, there are two main paths:
Voluntary Disclosure Program (VDP) – A “no-name disclosure” lets you approach the CRA anonymously to disclose unpaid taxes. Mahad’s firm completed over 60 VDPs in 2024 alone. The CRA may waive penalties and interest if you disclose proactively and agree to pay the principal tax owed.

T1 Adjustments – Ideal for those with small gains and large losses. These adjustments should include a clear explanation (e.g., lack of crypto tax knowledge, previous accountant unaware of crypto laws, etc.).


The bottom line: CRA will work with you if you approach them transparently and have the right guidance. As Mahad emphasized, having a knowledgeable crypto accountant is critical, especially when explaining events like lost coins from collapsed exchanges (e.g., QuadrigaCX, Celsius, Mt. Gox). These losses are often accepted and can be claimed.

“There will always be a bull run in crypto,” Mahad reminds us. Proper recordkeeping today can lead to big tax savings tomorrow.

How Staking Rewards Are Taxed in Canada (and Why It’s Not Double Taxation)
A question from a listener, Crypto Goose, opened a deeper discussion about staking rewards and tax treatment.

Here’s how Mahad broke it down:
When you receive staking rewards, they are treated as income at the time of receipt—not when you sell them.
If you later sell those rewards for a profit, the gain from that point forward is treated as capital gains based on your Adjusted Cost Base (ACB).
 

You’re not paying tax twice—you’re paying income tax first when you receive the rewards, then capital gains tax later if the value goes up.

Mahad acknowledged the U.S. lawsuit involving the Tezos staking case, which argues that staking rewards shouldn’t be taxed until sold. While the IRS and CRA differ slightly in their interpretations, Canadian tax law currently treats staking rewards as interest income.

If you’re an employee receiving crypto and staking it, CRA’s rulings department has confirmed that the same tax logic applies: income first, capital gains later.

Why Aren’t More Accountants Challenging the CRA?

Crypto Goose also asked why more accountants aren’t standing up to the CRA on behalf of crypto users. Mahad’s answer was direct:
“There are over 700,000 accountants in Canada. But only two specialize in crypto.”

Most accountants aren’t equipped to handle the fast-moving, nuanced world of crypto taxation. Mahad emphasized that his firm actively challenges CRA interpretations, submits clarification requests to CRA’s rulings department, and defends clients rigorously in audits.

“Maybe I should be appointed Canada’s ‘Crypto Czar,’” he joked—though after hearing his insights, many in the room agreed it wouldn’t be a bad idea.

Common Crypto Tax Mistakes (And Why Most Can Be Avoided)

When asked about frequent crypto tax mistakes, Mahad’s advice was clear:
“There’s no shortcut—do your research and get a good accountant.”

Here are the top issues he encounters:

Blind reliance on tax software: Tools like CoinLedger, Koinly, and TokenTax often miss context or misclassify transactions. CRA rejects these summaries and instead demands raw CSV files for audits.
Inadequate recordkeeping: Many forget their seed phrases or lose track of wallets, especially if involved with failed platforms like Celsius or FTX.
Not reporting foreign holdings: Canadians holding crypto on foreign exchanges must file T1135 forms—even if no gains are realized. This is for information reporting, not tax collection, but it's mandatory.
Working with general accountants: Most CPAs in Canada still don’t understand crypto. With only two true crypto-specialized accountants, mistakes are common.

Mahad recommends only using regulated platforms like Coinsquare and Kraken for trading in Canada. These platforms work well with accountants and simplify compliance.

Why You Shouldn’t Rely Solely on Tax Software

CRA has become increasingly aggressive in crypto audits. Mahad explained that audit letters now come with 6 to 37 pages of detailed questions, including:
How long have you been trading?
Who advises you?
What strategies or platforms do you use?
Do you consider yourself an investor or a business?

They also demand original CSV files, not software-generated summaries. CRA is specifically trying to determine if your activity should be treated as a business, which has much higher tax implications.

Claiming Losses from Hacks, Failed Projects, and Rug Pulls
The good news: If you’ve been burned in the crypto world, you may be able to claim a loss.
Mahad confirmed that Canadians can:
Amend prior returns going back up to 7 years.
Carry back capital losses for 3 years.
Carry them forward indefinitely.

Losses from:
Exchange hacks (e.g., Mt. Gox, QuadrigaCX)
Failed NFT games or DeFi projects
Rug pulls or scams
…are all potentially deductible.

But the key is classifying the type of investor or trader you are and having clear documentation.

 

Can You Legally Reduce Crypto Taxes in Canada?

Yes—but not by hiding anything, Mahad emphasized.

Instead:
Change your tax jurisdiction. Countries like UAE, Bahrain, Malta, Singapore, Bermuda, and BVI offer zero or low tax environments for crypto.
For Canadians: You can set up an offshore corporation (e.g., in BVI), transfer your assets to that company, and only report income repatriated back to Canada.
CRA taxes based on residency, not citizenship. So PR holders in Canada are taxed just like citizens. Foreign bank accounts and corporations must be reported via Form T1135, but this doesn’t automatically trigger tax—it’s an informational requirement.

“You can use an offshore structure to reduce taxes on your crypto gains while staying fully compliant,” Mahad explained.

How the CRA Views DeFi, Staking, and Mining Activities

DeFi is messy. That’s how Mahad, CEO of Block3 Finance, described it—and he wasn’t exaggerating.

From yield farming to NFT gaming, decentralized finance creates tens of thousands of micro-transactions, many of which are hard to classify. But Mahad laid out a framework that helps simplify it.

Every DeFi Activity Has Its Own Tax Treatment

“You can’t lump all DeFi into one category,” Mahad explained.
“Each activity—staking, farming, swapping, rewards—has its own rules.”

Here's how CRA typically categorizes common DeFi actions:

The key factor? Volume and intent. If you’re operating frequently or professionally, CRA may view your activity as business income, which is taxed at a higher rate than capital gains.

NFT Games and Token Volatility: A Real Tax Nightmare

Mahad shared examples of people earning volatile tokens through NFT games. Often, these players received tokens worth $10,000 at the time of issue—but by the time they sold, the value had dropped to $1,000 or less.

Here’s how CRA might treat that:
$10,000 is classified as business income at time of receipt.
If sold at $1,000, that’s a $9,000 capital loss.

But that interpretation is harsh and inconsistent. Mahad admits that it’s not fair—but it’s how CRA currently assesses it.

This misalignment between economic reality and tax reporting has made DeFi unattractive to many Canadian participants.

The Complexity Is Pushing Accountants Away

“Most accountants stay away from crypto,” Mahad said.
“There’s no guidance. There’s no clarity. And CRA doesn’t accept reports from tax software.”

Accountants like Mahad have to manually sort through:
Wallet activity
CSV files
Transaction logs
NFT holdings
Platform-specific rules (e.g., Sandbox, Uniswap, Compound)

This is why Mahad strongly advises clients to incorporate. Running DeFi activity through a corporation gives:

Cleaner tax treatment
Ability to write off related expenses
Separation from personal liability
Easier defense in audits


Mahad shared many more insights beyond what we’ve summarized here.
To dive deeper into all the topics discussed—including tax optimization, DeFi, and crypto audits—watch the full conversation in the video below.