Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
GST/HST Rulings Directorate
Place de Ville, Tower A, 5th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 245345
Business Number: [...]
Dear [Client]:
Subject: GST/HST RULING
Cryptocurrency Transactions Made Through ATMs
Thank you for your request for a ruling regarding the application of the goods and services tax/harmonized sales tax (GST/HST) to the operations of […][XCo] by which it supplies its customers with certain cryptocurrency through their use of [XCo’s] automated teller machines (ATMs).
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references herein are to the Excise Tax Act (ETA) unless otherwise specified.
STATEMENT OF FACTS
Based on the information contained in the background document that you submitted on [mm/dd/yyyy], and our telephone conversation of [mm/dd/yyyy], as well as online information that we have obtained, we understand the following:
1. [XCo] is a [Canadian-resident] corporation […].
2. [XCo] is registered as a money services business with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
3. [XCo] supplies cryptocurrency […], by way of a network of ATMs […][in Canada]. […][All of the supplies in question are made after May 18, 2019.].
4. Customers use cash to make purchases through [XCo’s] ATMs. The customer inserts cash into the machine and the cryptocurrency of their choice is instantly sent by [XCo] to the customer’s digital wallet at the time of confirming the quantity purchased.
5. The quantity of the chosen cryptocurrency that a customer acquires for a given amount of cash inserted into an ATM of [XCo] is a function of the prevailing market price of that cryptocurrency plus […] amounts that are set by [XCo], […]. Your example showed the breakdown of a $100 transaction for a Bitcoin purchase as follows:
[…]
6. The cryptocurrency that is sold to a customer through one of [XCo’s] ATMs is owned by [XCo] immediately before the sale. The cryptocurrency is purchased by [XCo] on the open market, normally at the time of the transaction with the customer, […]. There are also some instances where [XCo] purchases cryptocurrency at the market price on one day and sells it on a subsequent day at the market price on that later day.
RULING REQUESTED
You have asked whether [XCo] is required to collect the GST/HST when it supplies its customers with cryptocurrency through its ATMs. […]
RULING GIVEN
Based on the facts set out above, we rule that [XCo] is not required to collect the GST/HST on the consideration for its supplies, made through its ATMs, of Bitcoin, Litecoin and Ether, as each of these meets the definition of a “virtual payment instrument”, as defined in subsection 123(1), the supply of which is an exempt supply of a financial service. Likewise, [XCo] will not have to collect the GST/HST on the consideration for any future supplies made through its ATMs of any other type of cryptocurrency that meets the definition of a virtual payment instrument.
EXPLANATION
The GST/HST legislative framework
The GST/HST is imposed under section 165 in respect of every “taxable supply” made in Canada. A “supply” is defined in subsection 123(1) to mean the provision of property or a service in any manner, including by way of sale. The term “sale”, in respect of property, is defined in that subsection generally to mean a transfer of ownership of the property. The subsection defines “supplier” as the person who makes a supply (i.e., the seller in the case of a sale) and “recipient” as the person who is liable to pay consideration for the supply.
No GST/HST is payable on an “exempt supply”, which is any supply included in Schedule V to the ETA. That Schedule of exempt supplies includes a supply of a “financial service”, as defined in subsection 123(1).
Determining the GST/HST treatment of [XCo’s] supplies made through its ATMs
The supply made by [XCo] in the circumstances is a supply by way of sale (i.e., transfer of ownership) of cryptocurrency. […] The total consideration for the sale is the total amount of cash that the customer inserts into the ATM.
[XCo’s] supplies by way of sale of Bitcoin, Litecoin and Ether are supplies of a financial service for the following reasons.
Each of Bitcoin, Litecoin and Ether meets the following definition of a “virtual payment instrument” in subsection 123(1):
virtual payment instrument means 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, other than property that
(a) 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,
(b) is primarily for use within, or as part of, a gaming platform, an affinity or rewards program or a similar platform or program, or
(c) is prescribed property [Currently, there is no prescribed property.]
A virtual payment instrument is, in turn, included in the definition of “financial instrument” in subsection 123(1), under paragraph (f.1) of that definition. Finally, a transfer of ownership of a financial instrument is a financial service under paragraph (d) of the definition of “financial service” in subsection 123(1).
As supplies of a financial service, [XCo’s] supplies by way of sale of Bitcoin, Litecoin and Ether are exempt supplies under Schedule V to the ETA (specifically, section 1 of Part VII of that Schedule). [XCo] is, therefore, not required to collect the GST/HST on supplies of Bitcoin, Litecoin and Ether made through its ATMs. Likewise, [XCo] will not have to collect the GST/HST on any future supplies made through its ATMs of any other type of cryptocurrency that meets the definition of a virtual payment instrument in subsection 123(1).
Under the heading “Additional Information” below, we have provided additional general information about key GST/HST provisions of the ETA that are relevant to [XCo]. Our comments herein are confined to the application of the GST/HST. […].
A GST/HST registrant is generally eligible to claim input tax credits (ITCs) to recover the GST/HST paid or payable on its business inputs to the extent that the inputs are acquired, imported or brought into an HST-participating province for the purpose of making supplies [for consideration] in the course of a commercial activity of the registrant. However, as defined in subsection 123(1), a “commercial activity” does not include any activity to the extent that it involves the making of exempt supplies.
Therefore, a registrant is not eligible to claim ITCs in respect of business inputs to the extent that they are acquired, imported or brought into a participating province for the purpose of making exempt supplies.
Since the supplies made by [XCo] that are described herein are exempt supplies, [XCo] cannot claim any ITCs on inputs related to the making of these supplies. For more information regarding the general input tax credit rules, refer to GST/HST Memoranda Series, Chapter 8 – Input tax credits: Eligible ITCs.
Special rules for persons that are financial institutions within the meaning of the ETA
Persons that are defined to be financial institutions for GST/HST purposes are subject to particular treatment under various provisions of the ETA, including provisions relating to input tax credits and certain elections. There are also specific reporting requirements under the ETA for financial institutions.
A “financial institution” is defined in subsection 123(1) to mean a person that is a financial institution under section 149. Pursuant to subparagraph 149(1)(a)(iii), a financial institution includes a person whose principal business is as a trader or dealer in financial instruments. Such a person is included among a subset of financial institutions that are defined to be a “listed financial institution.”
Since a virtual payment instrument is a type of financial instrument within the meaning of the ETA, [XCo] acts as a trader or dealer in financial instruments when, in the course of its business as described above, it purchases and resells Bitcoin, Litecoin, Ether or any other type of cryptocurrency that meets the definition of a virtual payment instrument. [XCo]would thus be a listed financial institution throughout a taxation year if such trading or dealing in virtual payment instruments were its principal business at any time in the year. Please refer to GST/HST Memorandum 17-6, Definition of “Listed Financial Institution”, for more information.
For additional information on the treatment of financial institutions for GST/HST purposes, go to “GST/HST and QST – Financial institutions, including selected listed financial institutions” on the Government of Canada website.
DISCLAIMER
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling(s) given in this letter provided that: none of the issues discussed in the ruling(s) are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed. The interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the CRA with respect to a particular situation. Future changes to the ETA, regulations, or the CRA’s interpretative policy could affect the interpretation(s) or the additional information provided herein.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 416-709-0130.
Should you have additional questions on the interpretation and application of the GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287 or by fax to 1-418-566-0319.
Sincerely,
Marlene Legare
Industry Sector Specialist
Financial Services Unit
Financial Services and Real Property Division
GST/HST Rulings Directorate
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