Proposed Amendments to the GST/HST Treatment of Cryptocurrencies

Davies Lawyers | John J. Lennard, Ariane Hunter-Meunier and Eytan Dishy |

digital currency and taxes - Proposed Amendments to the GST/HST Treatment of CryptocurrenciesThe Department of Finance (Canada) (Finance Canada) has released, for public comment, draft legislative proposals (Draft Proposals) to amend the Excise Tax Act (ETA) in order to address certain issues regarding the treatment of virtual currencies for the purposes of the goods and services tax/harmonized sales tax (GST/HST).

Draft Proposals on Virtual Currency

Finance Canada proposes to exempt most transactions involving cryptocurrencies from GST/HST by incorporating a new defined term, “virtual payment instrument,” in the definition of “financial instrument.” Most transactions involving financial instruments are classified as “financial services,” which are exempt from GST/HST.

More specifically, a “virtual payment instrument” is defined to mean “property that is a digital representation of value, that functions as a medium of exchange and that only exists at a digital address of a publicly distributed ledger.”

The definition sets out two principal exclusions:

  1. Property that “confers a right, whether immediate or future and whether absolute or contingent, to be exchanged or redeemed for money or specific property or services or to be converted into money or specific property or services” – for example, a gift card.
  2. Property that is “primarily for use within, or as part of, a gaming platform, an affinity or rewards program or a similar platform or program” – for example, online gambling tokens.

See:  Guide to Canadian cryptocurrency taxation

Uncertainties Addressed by the Draft Proposals

The Canada Revenue Agency (CRA) has thus far refrained from commenting in any significant detail on the GST/HST implications of transacting in cryptocurrencies. From an income tax perspective, it has been the CRA’s long-standing position that virtual currencies, such as bitcoin, should be treated as commodities subject to barter rules, given that they are not currencies issued by a government of a country.1 Nevertheless, the lack of guidance from a GST/HST perspective has given rise to uncertainties, including whether (i) cryptocurrencies can plausibly be characterized as “money” for GST/HST purposes; (ii) transactions involving cryptocurrencies are subject to GST/HST; and (iii) activities carried on by industry participants, such as mining, are subject to GST/HST.

The Draft Proposals, released on May 17, 2019, address the first two uncertainties.

With respect to the first uncertainty, by defining a “virtual payment instrument” as “property” within the definition of “financial instrument,” Finance Canada seems to have determined that cryptocurrencies are not “money” as defined in the ETA, since the definition of “property” excludes money. This does not preclude arguments that cryptocurrencies are money in relation to transactions completed before May 18, 2019.

With respect to the second uncertainty, the Draft Proposals primarily address two concerns regarding transacting in cryptocurrencies:

  1. Double tax. It has been suggested that transacting in cryptocurrencies could be subject to double tax (once when issued and once again when used to purchase goods or services). The Draft Proposals ensure that the purchase of goods and services using cryptocurrencies will be exempt from tax.
  2. Place of supply rules. Since GST/HST applies only to a supply made, or deemed to be made, in Canada, the anonymity of the recipient when transacting with cryptocurrencies could have complicated the determination of the place of supply and therefore whether GST/HST would apply. By exempting most transactions involving cryptocurrencies from GST/HST in the first instance, the Draft Proposals address this concern.

See:  Digital currency - CRA on taxes, mining, goods and services, barter and exchange

Remaining Uncertainties

Uncertainty still remains with respect to the status for GST/HST purposes of mining activities and the entitlement for miners to claim input tax credits in this respect. Similarly, due to the anonymity of purchasers of cryptocurrency, inherent uncertainty remains as to the practical application of zero-rating provisions related to the supply of cryptocurrency to non-residents.

Continue to the full article --> here


NCFA Jan 2018 resize - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

Latest news - Proposed Amendments to the GST/HST Treatment of CryptocurrenciesFF Logo 400 v3 - Proposed Amendments to the GST/HST Treatment of Cryptocurrenciescommunity social impact - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
NCFA Fintech Confidential Issue 2 FINAL COVER - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies

Cambridge Alternative Finance Centre | Sep 19, 2019 The second edition of the Global Enterprise Blockchain Benchmarking Study provides new insights into the current state of the enterprise blockchain ecosystem. The study gathers survey data from 160 start-ups, established companies, central banks, and other public-sector institutions from 49 different countries worldwide. The empirical analysis specifically focuses on enterprise blockchain networks that have entered in production. Some Highlights from the report The banking, financial markets and insurance industries are responsible for the largest share of live networks: The trend indicated in 2017 has continued: 43 per cent of enterprise blockchain networks deployed in production can be attributed to Financial Services, far ahead of any other sector and industry. The specific use case of a network can be at times difficult to identify, but supply chain tracking, trading infrastructure, and document certification seem to currently dominate.   Companies and institutions from nearly every sector and industry of the global economy have been exploring the potential of blockchain technology in recent years. The Accommodation and Food Services as well as the Healthcare and Social Assistance sectors come at a distant second place with 6% of all networks each. Cost reduction is the main value ...
Read More
Cambridge Centre 2nd Enterprise Blockchain Benchmarking study - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
Business Cloud | Alistair Hardaker | Sep 13, 2019 Only a few firms said they are now prepared for a potential crash out of the EU next month Most London FinTech firms are not prepared for the fallout of a no deal Brexit, says a new report. More than three quarters, (78 per cent) of firms surveyed by Innovate Finance said they were not prepared for Britain to leave the EU without a deal, and 45 per cent said they don’t feel prepared even if there is a transition period. The main concerns of a no-deal scenario shared by the FinTech firms were ‘passporting’, by which firms can apply for a ‘passport’ to do business throughout the EU, cross-border transactions, servicing EU clients and retaining and attracting new talent. The survey also reports that 38 per cent of FinTech say they have not taken any steps to prepare for Brexit, but the majoirty have begun tasks such as reviewing data processing, preserving talent and undertaking risk management procedures. See:  Europe’s fintech companies are preparing for a no-deal Brexit Who’s afraid of Brexit? Here’s why Canadian fintechs are flocking to London Charlotte Crosswell, CEO of Innovate Finance, said: “At this time ...
Read More
london tower bridge - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
Financial Post | Julius Melnitzer | Sep 17, 2019 In a general sense, what the Bureau wants to know is whether the characteristics of certain digital markets favour concentration — a process called 'tipping' The Competition Bureau’s recent call to Canadians to flag anti-competitive conduct in the digital economy is raising eyebrows among industry professionals. Certainly, the Bureau’s consultation seems far more concrete than what is evident from the regulator’s statement that it “is examining concerns that certain digital markets have become increasingly concentrated.” “The Bureau is looking to collect information and understand facts to determine whether increased concentration is truly occurring,” says Anita Banicevic, a competition partner in Davies Ward Phillips & Vineberg LLP’s Toronto office. “But it’s also looking to see whether it should take enforcement actions and beyond that, a fairly open call for complaints on which to base such actions.” Although Banicevic acknowledges that the Bureau has “always been driven by complaints to a significant degree” and “does have the ability and resources to weed out the genuine complaints from those that are meritorious,” she still finds the call-out disquieting. “I remain concerned that the call for complaints is essentially a matter of looking for issues,” ...
Read More
big tech and competition bureau - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
Globe and Mail | Lauren Robinson | Sep 12, 2019 Lauren Robinson is general partner at Highline BETA and executive director at Female Funders For decades the research has been clear: businesses benefit from gender diversity. Women are starting businesses at a faster rate than ever before, and leadership teams that include women provide better financial returns for investors. Investing in women is good for business. But for women founders looking to launch and scale successful businesses, access to capital remains a major barrier. There is consistent data showing that deal flow is often sourced from pre-existing networks. This explains why women entrepreneurs have a higher likelihood of closing an investment when a female investor is involved: venture firms are twice as likely to invest in women-led startups if they have at least one female partner on their team, and women angel investors place greater importance on the gender of the founders they are considering investing in. Women entrepreneurs are more likely to access capital when there are women making investment decisions. This is critical when funding for female founders is stalled at 2.2 per cent of the total invested in the United States. We can do better. Why venture ...
Read More
lauren robinson - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
University of Pennsylvania | Wharton Knowledge | Sep 10, 2019 As the finance industry grapples with what the next generation of banks and payment systems will look like, it’s clear that partnerships are a linchpin for riding the wave of change successfully, whether you’re a multibillion-dollar traditional bank or a startup looking to bring cutting-edge technology into the mainstream. “The rails that these payment systems are built on date back 20-30 years – people are not starting to reinvent that alone; it isn’t an overnight thing – it’s incremental innovation adding up to something massive,” said Jennifer Lee, vice president focused on fintech at growth equity firm Edison Partners during the recent Fearless in Fintech conference at Wharton San Francisco. At the conference, which was co-sponsored by Knowledge@Wharton and Wharton Executive Education and organized by Momentum Event Group, Denise Leonhard, head of global credit expansion, business development and expansion at Paypal, used her company’s online payments system as an example of the challenges ahead. “We’ve built our infrastructure with all these different partners – payment networks, bank issuers … we’re all playing in a very messy soup,” she said. “What we’ve been building in the last 20 years has brought ...
Read More
future of fintech partnerships - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
BBC | Sep 16, 2019 Kickstarter has been accused of "union-busting" after firing three employees. Taylor Moore, the company's head of comedy and podcasts, tweeted that he and another employee were fired on Thursday, while tech and design lead Clarissa Redwine was fired last week. All three were heavily involved in the formation of a Kickstarter union this year, Mr Moore added. Kickstarter confirmed the employees were fired, but denied that it was because of their union activity. Mr Moore tweeted that he had worked at the company for six years. He said that when Kickstarter fired him they "offered me no real reasons, but one month's severance for signing an NDA" - a non-disclosure agreement. "I will not be signing it." "The union busting campaign that Kickstarter management is engaging in is illegal and wrong," he added. "It is an unforgivable abandonment of the values of an organisation that I have loved and served with my whole heart." Ms Redwine also tweeted at the company, saying: "I will not be signing your termination agreement containing a non-disparagement clause. You can keep my severance." See:  A Digitized Staff Compliance Platform is a Must-Have She added: "Kickstarter's management continues to state ...
Read More
kickstarter acused of unionbusting - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
FCA | Sep 11, 2019 Speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the Cambridge Centre for Alternative Finance annual conference, Judge Business School. Highlights: The UK has led the rest of the world with developments like the regulatory Sandbox, we are very proud of what has been achieved through it. Early engagement is incredibly valuable for monitoring, supervisory and policy purposes. Working with innovative firms helps us achieve a better bird’s-eye view, enhancing our understanding when the overall landscape is blurry and ­changing quickly. 'Stablecoin' is a term that has been widely adopted by industry, but we do not take it to be a distinct category of cryptoassets. Something labelled as a 'stablecoin' could sit within or outside of our regulatory perimeter. Note: this is the speech as drafted and may differ from the delivered version. See:  FCA confirms new rules for P2P platforms Last month, Facebook announced its plans for Libra, the stablecoin it is planning to launch in conjunction with a number of payment and tech firms. As has been widely reported, along with other regulators and central banks, we have been discussing their plans with Facebook. If this comes ...
Read More
Christopher Woolard2 - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
NCFA Canada | Sep 13, 2019 JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY. Sep 13: Funding is Female with Jill Earthy EP37 GUEST: JILL EARTHY, Head of Female Funders (Linkedin) HOST: Manseeb Khan, Fintech Friday's show host BIO:  Jill Earthy is an entrepreneurially minded leader who believes diversity drives innovation. As Head of Female Funders (powered by Highine BETA), she is empowering female leaders to become investors in early stage companies. Her background includes being an entrepreneur, supporting entrepreneurs in various leadership roles and working as Chief Growth Officer of FrontFundr, an online investment platform. She is a community leader and active mentor, currently serving on the national Board of Sustainable Development Technology Canada and as Board Chair of the Women’s Enterprise Centre in BC, and as Co-Chair of We for She. Jill was recently recognized by the Canadian Centre for Diversity and Inclusion award as a Community Champion, by Business in Vancouver as an Influential Woman in Business and by WXN as one the Top 100 most powerful women in Canada in 2019. About this episode:  On this episode of NCFA'S Fintech Fridays Podcast, our host Manseeb Khan sits down with Jill Earthy the Head of Female Funders. The talk about what ...
Read More
FF EP37 female funders 1 - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
TechCrunch | Kate Clark | Sep 12, 2019 Affirm, founded by PayPal’s Max Levchin, is said to be raising as much as $1.5 billion in a combination of debt and equity, according to people with knowledge of the company’s fundraising activities. Josh Kushner’s New York venture capital firm Thrive Capital is said to be leading the financing, with participation from the San Francisco outfit Spark Capital. Affirm declined to comment. Representatives of Thrive and Spark, existing Affirm investors, have not responded to a request for comment. Sources familiar with Affirm, which gives consumers an alternative to personal loans and credit by financing online purchases at point-of-sale, presume the round will be made up largely of a line of credit from a large financial institution, known as a warehouse facility. Affirm recently raised a $300 million Thrive-led Series F round in April at a valuation of $3 billion. Fintech companies focused on payments and lending, however, require a vast amount of capital to sustain operations. Those capital requirements coupled with the frothiness of the venture capital market justify this additional cash infusion. To date, Affirm has raised $1.03 billion in funding from Ribbit Capital, Founders Fund, Andreessen Horowitz, Khosla Ventures, Lightspeed ...
Read More
max levchin - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies
Le Monde with AFP | Sep 12, 2019 Bruno Le Maire expressed his hostility towards this cryptocurrency project, saying that "the monetary sovereignty of states is at stake" Finance Minister Bruno Le Maire announced on Thursday (September 12th) that France was refusing to authorize the development "on European soil" of libra, the cryptocurrency that Facebook wants to launch in 2020. "Considerable financial disorder" "The monetary sovereignty of states is at stake," said the minister at the opening of a conference of the Organization for Economic Co-operation and Development (OECD) dedicated to the challenges of cryptocurrencies - without specifying, however, what concrete measures he wanted engage to prevent the spread of libra in Europe. See:  Facebook’s Libra Cryptocurrency: Everything We Know In his speech, Bruno Lemaire described as "systemic" the risks that could result from this "possible privatization of a currency (...) held by a single actor that has more than 2 billion users on the planet" . "Any failure in the functioning of this currency, in the management of its reserves, could create considerable financial disorders , " justified the Mayor, also fearing that the libra is replacing the national currency in the States where the currency is weak or ...
Read More
Bruno Le Maire Minister Finance of France vows to block facebooks libra - Proposed Amendments to the GST/HST Treatment of Cryptocurrencies