Until recently, prediction markets were unavailable in Canada. On March 26, 2026, the Canadian Investment Regulatory Organization (CIRO) published a bulletin announcing its requirements for investment dealer members who wish to operate in prediction markets and offer event contracts. (CIRO Bulletin) Previously, prediction markets were prohibited in Ontario and much of Canada through the implementation of Multilateral Instrument 91-102 Prohibition of Binary Options, by the Ontario Securities Commission (the “OSC”).
What Are Prediction Markets and Event Contracts?
Prediction markets provide the opportunity to purchase and sell shares of contracts that are dependent on the outcomes of future events. These contracts are typically presented as binary options, often referred to as “event contracts”. Each event contract poses a question that can be answered with a simple “yes” or “no”. When you purchase a share in a contract, you take a position on the outcome.
The price of the contracts can range from $0.01 to $0.99, varying based on the proportion of shares sold for the “yes” contract and the “no” contracts. The sum of the price per share of the two opposing contracts for the same event equates to $1.00. By purchasing a share for $0.30, you stand to make $0.70 in profit if the event takes place as you predicted, returning a total of $1.00. Conversely, if you purchased a share for $0.70 and were incorrect in your prediction, you would lose that amount.
Gains and losses can also be generated from event contracts before the date of maturity. If the probability of your event contract improves after you purchased your shares, you can sell those shares to others. Your profit or loss in the disposition would be the price of sale less your purchase price.
The CIRO Requirements
In their recent bulletin, the Canadian Investment Regulatory Organization (“CIRO”) confirmed that two CIRO investment dealer members had been authorized to facilitate trading in event contracts: Wealthsimple and IBKR.
Section (1) of Appendix A of the bulletin identifies the three permitted subject areas for events contracts:
Economic Forecasts: such as economic statistics related to the amount of sovereign debt, inflation rates, central bank reserve rates, labour markets, and housing;
Environment Forecasts: such as climate indicators related to the average global temperature;
Financial Indicators: such as the US 500 Forecast Contracts that settle based on the daily settlement price of the Chicago Mercantile Exchange (“CME”) E-Mini S&P 500 Futures.
Section (2) of Appendix A requires each contract to have at least a thirty-day term to maturity. This also applies if an existing event contract has a new threshold added to it, requiring there to be at least thirty days until the date of maturity after the last alteration to the contract was made.
Are Event Contract Gains Taxable?
The Canada Revenue Agency (“CRA”) has not issued definitive guidance for the taxation of prediction market gains; however, it is likely that prediction market gains will be treated as a form of taxable investment income. The CIRO, Canadian Securities Administrators (“CSA”), and the OSC are responsible for regulating prediction markets in Ontario; therefore, it is likely that any gains will be treated similarly to other forms of derivative contracts.
Tax Planning: What Should I Consider?
The primary consideration in tax planning is knowing whether your gains and losses will be taxable at the level of capital gains or business income.
Capital gains are profits that you earn by selling an asset for more than you paid for it. Only 50% of the profit you earn on your investment will be included in your taxable income. If you hold shares in an event contract to maturity and profit from your prediction, this is likely to be treated in the same fashion as if you had sold your share in the contract before it had matured. The same is true for losses that you incur. Only half of your losses will be eligible to offset any other capital gains that you may have. Conversely, gains classified as business income are completely taxable and can also capture profit generated by the disposition of an asset. These profits are added directly to your taxable income.
CRA Factors to Consider in Determining Capital Gain Versus Business Income:
Frequency and Volume – If you are engaging in prediction market trades often or at a high volume, the CRA would be more likely to view your gains as business income.
Expertise and Time Spent – If you have specialized knowledge or skills in the area of prediction markets or the subject matter to which these event contracts are related to or spend a significant amount of time researching and preparing for event contract trades, your gains would be more likely to be categorized as business income. Professional experience or academic background in a related field can also increase the likelihood of a business income designation.
Regularity and Organization – If you are engaging with prediction markets on an organized and systematic basis, any proceeds are more likely to be labelled as business income, as you are conducting yourself in a business-like fashion.
Period of Ownership – The general view of the CRA is that a short holding period is consistent with commercial trading practices and an intention of earning quick profits. This may not be as obvious in the context of event contracts since each share held has a set date for maturity. However, constant trading and a pattern of dealing with event contracts that are near maturity or that have had sudden shifts in probabilities could make the CRA view this as business activity.
Intention – The intention of the individual is also carefully considered. A taxpayer who invested with the intention of making a profit is likely to have their gains taxed as income.
Although these factors are illustrative of what to consider, they are not exhaustive. The CRA makes these decisions on a case-by-case basis.
The Importance of Objective Intention
Special consideration should be given to the “Intention” factor as this may bear a great deal of weight and be proven to be the determinative factor for event contract transactions. The case of MacDonald v. Canada established a test that can be applied broadly to derivative contracts. An individual’s intention can be defined as hedging an existing capital asset to mitigate potential losses or as speculation, which is characterized as having the primary view to make a profit. The Supreme Court of Canada determined that MacDonald had hedged when he had entered a forward contract, a type of derivative contract that creates an obligation for one party to sell, and the other to buy, a specific asset at a pre-determined future date and for a pre-arranged price.
MacDonald held Bank of Nova Scotia shares and made a forward contract with TD Securities (“TD”), which would pay MacDonald if his shares decreased in value. Conversely, MacDonald would pay TD if his shares increased in value. The latter occurred. Based on the objective facts, the SCC determined MacDonald was mitigating a risk of loss on the capital assets that he held, determining it to be a capital loss. This meant only half of his losses were deductible against his taxable income.
The SCC stated that the purpose for a transaction that is objectively ascertainable cannot be overwhelmed by claims of a different purpose after the fact. If the facts indicate that you are speculating to make a profit, your gains will likely be treated as business income, whereas if they indicate that you are mitigating a risk of loss, your gains will likely be treated as capital gains. This creates a risk of unintended objective intention with serious tax implications and highlights the importance of being aware of the facts surrounding each transaction that you take part in.
Conclusion
Although the CRA has not published a guideline pertaining to predictive markets, it is likely that their treatment will be quite similar to other forms of derivative contracts and securities. As with any type of investment, it is important to keep a record of your transactions and report your earnings and losses.
If you are unsure of your tax obligations and/or are in need of assistance, Devry Smith Frank LLP has tax lawyers who can provide you with the assistance you need.
This blog was co-authored by articling student Michael Goodman.
