Proposed Changes to Crypto Mining GST/HST Rules: What’s Capture and What’s Not?

GST | Jan 12, 2023

Crypto mining taxes - Proposed Changes to Crypto Mining GST/HST Rules:  What’s Capture and What’s Not?In February 2022, Canada’s Department of Finance released draft GST/HST legislation covering cryptocurrency mining. The proposed rules will effectively treat cryptocurrency mining as an exempt supply

  • These proposals have not yet taken effect. According to the Department of Finance, if the legislation is passed, these tax rules will retroactively come into force as of February 5, 2022.

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

  • Section 188.2 deems the provision of “mining activity” to not be a supply for GST/HST purposes. Under the proposed legislation, mining activity covers three pursuits:
    • Cryptocurrency mining: The process by which new cryptocurrency transactions are verified and recorded as a new block on the cryptocurrency network’s blockchain.
    • Cryptocurrency nodes: The process of maintaining a cryptocurrency network’s blockchain and allowing access to the blockchain ledger.
    • Pool mining: The pooling of computer resources by cryptocurrency miners so that they may increase their chances of being the first to validate a transaction. (Cryptocurrency mining occurs on a competitive basis. A mining reward is credited to the miner who validates the transaction first.)
  • Cryptocurrency miners need not collect and remit GST/HST on the miner’s compensation from mining, but the crypto miner also cannot claim input tax credits (or ITCs) for the expenses relating to the cryptocurrency-mining operation.

See:  Canadian Bitcoin Mining 2022 Recap and Outlook

  • Exemption:  The proposed rules for cryptocurrency mining tax in Canada contain an exception: They don’t apply when a person performs the cryptocurrency-mining activity for another person whose identity is known to the first person and who doesn’t qualify as a “mining group operator,” which basically refers to a coordinator of a mining pool. In these limited circumstances—when someone mines cryptocurrency for a known person who doesn’t coordinate a mining pool— section 188.2 doesn’t apply, and cryptocurrency miner may need to charge GST/HST on that supply of mining services.

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