HOLDING DIGITAL ASSETS IN RRSPs: Pitfalls and Possibilities

HOLDING DIGITAL ASSETS IN RRSPs: Pitfalls and Possibilities

Recently, individuals have become more interested in investing in digital assets such as cryptocurrencies (Bitcoin, Ethereum, Dash etc.); cryptocurrency liquidity mining and yield farming; and non-fungible tokens (NFTs). The next question often asked is whether such items can be held in tax-advantaged accounts such as an RRSP.

An RRSP’s tax-preferred treatment only extends to “qualified investments.” Broadly speaking, qualified investments only include money and securities that are listed on a designated stock exchange. As such, digital assets like cryptocurrencies and NFTs are not qualified investments, so they cannot be held in an RRSP.

However, the investment market has seen a recent surge in cryptocurrency-based exchange-traded funds (ETFs). Many of these are traded on designated stock exchanges, so these cryptocurrency ETFs may be qualified investments. A September 20, 2021 Walletbliss article (Best Crypto ETFs in Canada (2021): Cryptocurrency For All, Simon Ikuseru) lists Canadian Bitcoin and Ethereum ETFs noted as being eligible RRSP and TFSA investments.

Caution must be afforded as a penalty tax applies if the RRSP acquires a non-qualified investment, with the penalty tax equal to 50% of the fair market value of that investment. In addition, the RRSP is taxable on any income from the non-qualified investment and on any capital gain (not the normal 50% taxable capital gain) from disposing of the non-qualified investment.

ACTION ITEM: If interested in holding digital assets in a tax-sheltered savings account such as an RRSP, make sure that item is a qualified investment.

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