What to consider before using a crypto-linked credit card in Canada

Before using a crypto-linked credit card in Canada, consider how the card works, what rewards are offered, what fees may apply, how crypto rewards are taxed, and whether crypto volatility can be tolerated.

The first thing to check is what type of card an applicant is looking at. Some crypto-linked cards are prepaid cards or debit-style products. Others are true credit cards.

A credit card gives the cardholder access to a credit limit and requires repayment later. As such, a credit card lets users pay for goods and services, and the credit limit is the maximum total amount the user can spend. As the balance is paid down, more credit becomes available. This is known as revolving credit.

A prepaid card does not work the same. A user needs to load funds onto their card before spending. If the product is a crypto rewards credit card, the card should be understood as a regular credit card where eligible rewards are paid in crypto.

Rewards should not be the first thing a cardholder looks at, whether they are offered in crypto, cashback, travel points, gift cards, or anything else. The interest rate matters more if the balance is not paid in full on time.

If a cardholder carries a balance, interest charges may cost more than the value of any reward earned. It is always best to pay off a credit card balance in full by the due date. If a user cannot do that, paying more than the minimum can reduce total interest costs.

Before using any credit card, review the full fee schedule. Some cards may include an annual fee, foreign transaction fee, cash advance fee, late payment fee, overlimit fee, replacement or supplemental card fee, or other account charges.

For cards connected to crypto rewards, users should also understand whether any fees apply when crypto rewards are received. This may also include blockchain fees. Fees may also apply when the crypto is sold, transferred, converted, or withdrawn. These details can affect the real value of the rewards.

Know how the crypto rewards are calculated
Crypto rewards can be structured in different ways. Some programs may calculate rewards as a percentage of eligible purchases. Others may have reward categories, caps, exclusions, promotional rates, or different reward rates for different types of spending.

Cardholders should check:

• Which purchases are eligible.
• Whether rewards are paid in Bitcoin, another crypto asset, or a selected asset.
• When rewards are calculated.
• When rewards are deposited.
• Whether reward rates can change.
• Whether there are limits, exclusions, or promotional terms.

Understand crypto volatility
Crypto rewards are different from cashback because their value can change after they are received. This is because crypto rewards are paid in a crypto asset, which may rise or fall in price. By contrast, cashback or store points are usually denominated in Canadian dollars.

This means a crypto reward that appears valuable at first may be worth more or less later. Users should be comfortable with that volatility before choosing to apply for a crypto credit card.
 

Crypto rewards may have tax implications in Canada when the asset is later sold, traded, converted, transferred, or otherwise disposed of.

Typically, Canada Revenue Agency guidance says that when someone disposes of a crypto asset, the income or loss may be considered a capital gain or loss or business income or loss, depending on the facts.

Cardholders should keep records of crypto rewards, including dates, fair market value when received, transaction history, and what happens when the crypto is later sold or transferred.

A crypto-linked credit card directly appeals to users who want digital assets. Cashback reward programs are simple because the reward is usually paid in dollars or applied as a statement credit. Points may be useful for travel, loyalty-program redemptions, merchandise, and similar benefits. Crypto rewards offer exposure to crypto, but they also come with price volatility.

The right choice depends on the user’s goals. Someone who wants predictable reward value may prefer cashback. Someone who understands crypto risk and wants crypto exposure may prefer crypto rewards.