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Canada: Release Of Draft Tax Legislation For Consultation including GST/HST for Crypto Mining

Miller Thomson LLP | Feb 21, 2022

crypto taxes new - Canada: Release Of Draft Tax Legislation For Consultation including GST/HST for Crypto MiningAn extensive package of draft legislative proposals was released for public comment by the Department of Finance on February 4, 2022 (the "Proposals") along with explanatory notes (the "Notes").  The Proposals include some, but not all, of the measures announced or carried over in the 2021 federal budget and prior budgets.

This update provides an overview of a selection of the Proposal's measures to amend the Income Tax Act (Canada) (the "Tax Act") and the Excise Tax Act (Canada) (the "ETA") that may be of interest to our clients, but is not exhaustive. The Proposals outlined in this update include those in respect of:

  • Limitations on the Deduction of Excessive Interest and Financing Expenses
  • Mandatory Disclosure Rules for Reportable Transactions, Notifiable Transactions and Uncertain Tax Positions
  • Avoidance of Tax Debts
  • GST/HST and Mining Cryptocurrency

GST/HST and mining cryptocurrency

The Proposals include the addition of new section 188.2 to the ETA which addresses the GST/HST treatment of "mining activities" with respect to "cryptoassets" and to remuneration received for performing mining activities. Currently, the ETA only addresses the supply of a virtual payment instrument, such as Bitcoin, which is treated as the supply of a financial instrument and not subject to GST/HST.

See: 

Crypto-tax primer in Canada

UK: Tax Regulator Updates Staking and DeFi Lending Guidance

Proposed section 188.2 of the ETA adds three new definitions: (a) "cryptoasset," which is broadly defined and includes, but is not limited to, a virtual payment instrument; (b) "mining activities," which describes three categories of activities; and (c) "mining group operator." Generally, these new provisions deem "mining activities" to not be a supply for GST/HST purposes. This means that businesses engaged in these activities will not be required to charge GST/HST. However, they are also limited in their ability to claim input tax credits in respect of property or services used, consumed or supplied in the course of these activities. Further, these new provisions address the GST/HST treatment of remuneration paid for mining activities that is paid by way of property or service (and not, for example, fiat currency).

If passed, new section 188.2 of the ETA is deemed to come into force on February 5, 2022, with limited grandfathering. The Minister of Finance will accept submissions with respect to these draft provisions until April 5, 2022.

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