The vault door is open — and the CRA may be losing track of Canadians’ digital wealth

From Switzerland’s vaults to Bitcoin wallets, wealth has gone borderless — and the Canada Revenue Agency (CRA) may be struggling to catch up.

“For thousands of years, storing wealth meant trusting a physical place with a physical address,” writes Group Head of Private Clients at Henley & Partners, Dominic Volek (1). “Then, in 2009, someone using the pseudonym Satoshi Nakamoto deployed a few thousand lines of code that would render geography optional.”

That shift — from bank vaults to blockchain keys — is quietly rewriting how wealth moves across borders and how governments attempt to tax it. For the CRA, this means the biggest challenge isn’t necessarily tax evasion anymore, it's wealth invisibility.

The rise of borderless wealth

Even as banking went digital, the system remained geographically anchored: Every account had an address, and every client had a tax ID. But crypto erased that requirement.

“Using nothing more than 12 memorized words, a person can hold a billion dollars in Bitcoin, accessible from Zurich or Zhengzhou with equal ease,” notes Volek (2)

This new class of digital wealth is massive and growing. According to Henley & Partners’ Crypto Wealth Report 2025, about 241,700 people now hold more than US$1 million in crypto assets — up 40% from the year before (3).

Globally, US$14.4 trillion in wealth crossed national borders in 2024. But unlike traditional transfers, an increasing portion of this capital no longer passes through identifiable financial institutions. As Volek puts it, “the entire architecture of modern finance assumes that money has a home address — but cryptocurrency doesn’t.”

That makes enforcement of residence-based taxation — the backbone of Canada’s system — far more complex.

A Bitcoin wallet, after all, “exists simultaneously everywhere and nowhere — a Schrödinger’s asset that only materializes into a specific jurisdiction when its owner chooses to convert it to fiat currency or declare it to authorities." explains Volek (4).

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Taxing the intangible

The CRA treats cryptocurrency as a commodity under the Income Tax Act, taxing profits as either capital gains or business income once the asset is sold or traded. But in decentralized finance (DeFi), many transactions never reach that point. Canadians can lend, borrow, stake, and earn yield across dozens of protocols — often anonymously and without intermediaries.

“The principle of tax residence assumes that wealth can be assigned a location based on where its owner resides, works, or incorporates,” explains Volek (5). “But what happens when wealth exists in a cryptographic dimension that transcends these categories entirely?”

That question is now shaping and defining any future tax policy worldwide — and across the globe regulators are trying to catch up. The OECD’s Crypto-Asset Reporting Framework (CARF), set to take effect in 2027, will compel governments to collect and exchange data on digital asset holdings much like they do for offshore bank accounts (6).

“The OECD’s Crypto-Asset Reporting Framework, fully launching in 2027, brings amended reporting requirements covering crypto-assets,” the OECD report notes (7). “But even this framework needs exchanges and service providers to cooperate.”

That cooperation is precisely what decentralized finance undermines. Unlike traditional banks, DeFi protocols often have no headquarters, CEO, or compliance department. For the CRA, identifying who owns what — or even where income originates — may soon become impossible.

Regulatory gaps

Regulators around the world face a delicate balance. Too light a touch invites abuse. Too heavy a hand, and capital simply vanishes — digitally.

“The more thoughtful regulators are beginning to recognize that heavy-handed enforcement might well accelerate the very disintermediation they seek to prevent,” Volek warns (8). “If declaring cryptocurrency becomes too onerous or punitive, users have unprecedented ability to simply not declare.”

That risk — crypto flight — has already emerged in Canada. Some investors quietly shift assets to cold wallets, privacy-enhanced blockchains, or offshore exchanges. Others relocate entirely, moving to jurisdictions such as Portugal, Dubai, or Malta, which combine light-touch regulation with favourable tax regimes.

In fact, “sovereign arbitrage" — investors strategically choosing jurisdictions based on their treatment of digital assets — is already an issue in many tax jurisdictions around the globe. For instance, Portugal exempts long-term crypto holdings from tax after 365 days, while Dubai’s Virtual Assets Regulatory Authority (VARA) offers comprehensive oversight with 0% tax on capital gains and salary (9).

By contrast, Canada’s tax treatment remains conservative and complex — leaving investors with uncertainty about staking income, NFT sales, and wallet-to-wallet transfers.

Peer-to-peer networks pose a further challenge. As Volek notes (10), “Implementing such frameworks requires cooperation from exchanges and service providers — infrastructure that decentralized protocols and peer-to-peer networks operate without, creating unprecedented regulatory complexity.”

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Solutions and innovation

Canada’s options are limited but urgent.

One proposal gaining quiet attention among policymakers is a digital asset registry — a blockchain-verified ledger for large transactions, similar to the OECD’s Common Reporting Standard (CRS) but built for decentralized networks (11). Others suggest a smart-contract-based compliance layer, where reporting is embedded directly into code. While technically feasible, such systems would require international coordination — and, critically, public trust.

Thankfully, Canada and the CRA aren't creating solutions in a vaccuum. Across the globe, a number of useful taxation models have emerged.

Estonia “pioneered crypto licensing in Europe,” Volek notes, giving non-residents the ability to register and manage companies online while maintaining transparency through digital IDs and open databases (12).

Meanwhile, Dubai’s framework allows digital-asset companies to operate under clear rules while offering tax incentives to attract global talent and investment. Canada could adapt either model, embedding transparency into law while maintaining competitiveness.

The challenge is not technological — it’s political. Digital wealth doesn’t fit neatly within existing definitions of residency, income, or even “currency.” The Canada Income Tax Act was designed for a world of borders — crypto was designed to erase them.

What’s at stake

At first glance, the issue seems remote — a concern for the ultra-wealthy with offshore wallets. But as Volek's data show, crypto is democratizing what used to be the privilege of multinationals and millionaires.

“The transformation of cryptocurrency democratizes capabilities once reserved for the ultra-wealthy,” Volek writes. It “expands financial inclusion on one hand, while straining long-standing mechanisms of taxation and regulation on the other.”

That means the same tools that once required an army of lawyers and shell companies — shifting profits across borders, hedging against inflation, and diversifying citizenship — are now accessible to anyone with an internet connection.

For Canada, this cuts both ways. It could empower entrepreneurs, digital nomads, and small investors. But it also threatens to hollow out the tax base if high-net-worth individuals move assets offshore digitally — without ever leaving Toronto or Vancouver.

Policy crossroads

The OECD framework will give Canada access to more international data on crypto transactions, but it won’t close every gap. Enforcement will depend on cooperation between exchanges, custodians, and national regulators.

And that’s assuming those entities exist — in many cases, DeFi protocols run autonomously, without a legal entity at all.

The CRA has already begun auditing crypto transactions, focusing on centralized exchanges like Coinbase and Kraken, but peer-to-peer transfers remain largely opaque (13).

That opacity could expand as Canadians adopt decentralized wallets or privacy-focused coins, especially if regulatory burdens increase. Policy experts suggest the solution isn’t tighter control but smarter integration — designing tax policy that recognizes digital assets as part of a global financial ecosystem rather than an offshore threat.

“Governments are scrambling to adapt their frameworks to this new reality,” Volek writes, “producing a patchwork of approaches that range from embrace to prohibition. The stakes could not be higher: 590 million people globally now hold some form of cryptocurrency.”

Conclusion: Adapting to a borderless world

Canada’s fiscal health depends on adapting — not resisting — a world where money has no borders. That's because the “digital offshore” revolution is no longer theoretical, it’s coded into the global economy. If Canada wants to preserve both competitiveness and compliance, it must modernize its tax and regulatory systems to reflect how wealth now moves — seamlessly, instantly, and without geography.

That may mean re-imagining the very notion of tax residence, building international partnerships that share blockchain data, or even developing new forms of digital citizenship.

What’s clear is that the vault door has already opened — and what’s inside isn’t gold. It’s code.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Henley & Partners: Digital Offshore (1, 2, 3, 4, 5, 8, 9, 10, 12); OECD (6, 7, 11); Canada Revenue Agency (13)