Canada expands tax oversight over the cryptocurrency sector – 2,500 Dapper Labs users disclosed to authorities

In the second significant court request regarding blockchain platform user data, the Canadian Revenue Agency gained access to information on 2,500 Dapper Labs users. The court decision, issued in Federal Court in September, marks an escalation in enforcement actions against the cryptocurrency sector in Canada, although the negotiation dynamics reveal significant limitations in the data acquisition process.

How negotiations over data access proceeded

Initially, the Canada Revenue Agency requested the disclosure of information about the first 18,000 users of the Dapper platform. However, after discussions with the company’s management and legal advisors, the parties ultimately reached a compromise – the number of disclosed users was set at 2,500. This negotiation turn suggests that cryptocurrency entities possess considerable bargaining power over tax authorities, even in cases where court orders are issued.

Growing revenue from cryptocurrency audits, but no criminal enforcement

Court documents, accessed by Canadian Press on December 8, reveal a comprehensive picture of the Canada Revenue Agency’s compliance efforts in the cryptocurrency sector. Over the past three years, the agency has collected over CAD (approximately $72 million USD) through tax procedures related to digital assets. The audit unit reviewed over 230 cases, but since 2020, no criminal proceedings have been initiated.

Analysis showed that at least 40% of taxpayers active on cryptocurrency platforms exhibit significant tax reporting deficiencies or low income declaration levels. Paradoxically, the Canada Revenue Agency itself admits in its report that “it lacks reliable mechanisms for identifying taxpayers operating in the cryptocurrency sector and verifying their compliance with tax laws."

Dapper Labs’ path in the context of Canadian court orders

This is not the first case where a Canadian court has compelled a cryptocurrency entity to disclose user data to tax authorities. In 2020, a similar order was issued against the Toronto-based exchange Coinsquare, setting a precedent for the current proceedings. The sequence of these court decisions indicates a changing enforcement strategy in Canada, where the absence of decisive criminal actions is compensated by increased access to platform user information.

The organizational structure of the Canada Revenue Agency, along with the revealed limitations in identification and verification, remains a key challenge in enforcing tax law in the digital assets sector.