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
5th floor, Tower A, Place de Ville
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 189540
[Dear Client]:
Subject: GST/HST Interpretation
Application to the mining and sale of cryptoassets.
Thank you for your correspondence of [mm/dd/yyyy], concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to the mining of cryptoassets. We apologize for the delay in this response.
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 are to the Excise Tax Act (ETA) unless otherwise specified.
INTERPRETATION REQUESTED
You would like to know the GST/HST application to the mining and sale of cryptoassets.
INTERPRETATION GIVEN
In the cryptoasset industry, most cryptoasset networks, including the Bitcoin network, that operate through the use of a publicly distributed ledger will utilize the services of persons for validating transactions and adding those transactions to the ledger. Such persons may be awarded remuneration for their activities when they are the person that validates the transactions and adds them to the ledger. The remuneration awarded usually includes a block subsidy from the network and a transaction fee(s), both in the form of cryptoassets. In these circumstances, there is generally no owner of the software or of the cryptoasset network, and no particular person that is responsible for its operation.
Cryptoasset Mining after February 4, 2022
On June 22, 2023, the Budget Implementation Act, 2023 (the BIA) received royal assent. The BIA enacted new section 188.2 of the ETA which contains rules respecting the application of the GST/HST to mining activities in respect of cryptoassets and to remuneration received as a consequence of performing a mining activity.
GST/HST Notice 324 Mining Activities in respect of Cryptoassets (Notice 324) has been released which addresses section 188.2. The information below is taken from Notice 324. Please refer to Notice 324 for any further information.
Section 188.2 addresses the application of the GST/HST to these activities (and other related activities) in respect of cryptoassets.
Section 188.2 states that where a person receives a mining payment in respect of a mining activity, subject to the exclusion in subsection 188.2(5), the provision of the mining activity is deemed not to be a supply for GST/HST purposes under subsection 188.2(4). Accordingly, the person would not be required to charge any GST/HST in respect of the provision of the mining activity. This would apply in respect of the receipt of any remuneration as a consequence of performing a mining activity that is received after February 4, 2022.
A ”mining activity” is defined in subsection 188.2(1) to mean “an activity of
(a) validating transactions in respect of a cryptoasset and adding them to a publicly distributed ledger on which the cryptoasset exists at a digital address;
(b) maintaining and permitting access to a publicly distributed ledger on which a cryptoasset exists at a digital address; or
(c) allowing computing resources to be used for the purpose of, or in connection with, performing activities described in paragraph (a) or (b) in respect of a cryptoasset.”
A “cryptoasset” is defined in subsection 188.2(1) to mean property (other than prescribed property) that is a digital representation of value and that only exists at a digital address of a publicly distributed ledger. There is currently no prescribed property for the purpose of the cryptoasset definition. Bitcoin is a cryptoasset for the purposes of section 188.2.
Subject to the exclusion in subsection 188.2(5), per subsection 188.2(2), to the extent that a person acquires, imports or brings into a participating province, property or a service for consumption, use or supply in the course of, or in connection with, mining activities of the person, the person is deemed to have acquired, imported or brought into the participating province, as the case may be, the property or service for consumption, use or supply otherwise than in the course of commercial activities of the person. Accordingly, the person would not be eligible to claim input tax credits (ITCs) with respect to such property or services acquired, imported or brought into a participating province after Feb. 4, 2022. This treatment applies even if the person does not receive any remuneration as a consequence of performing a mining activity, for example, in circumstances where acquisitions are used in a mining activity, however, the person is not successful in earning any remuneration.
In addition, if a person at any time consumes, uses or supplies property or a service in the course of, or in connection with, mining activities of the person, that consumption, use or supply is deemed to be otherwise than in the course of commercial activities of the person per subsection 188.2(3), if the consumption, use or supply of the property or service occurs after February 4, 2022.
Subsection 188.2(5) provides an exclusion to subsection 188.2(2) to (4) to the extent that the mining activity is performed by a particular person for another person if
(a) the identity of the other person is known to the particular person;
(b) where the mining activity is in respect of a mining group that includes the particular person, the other person is not a mining group operator in respect of the mining group; and
(c) where the other person is a non-resident person and is not dealing at arm’s length with the particular person, each property or service — being property or a service that is received by the other person from the particular person as a consequence of the performance of the mining activity — is supplied, or is used or consumed in the course of making a supply, by the other person to one or more persons each of which
(i) is a person whose identity is known to the other person,
(ii) deals at arm’s length with the other person, and
(iii) is not a mining group operator in respect of a mining group that includes the other person if the mining activity is in respect of that mining group.”
If subsection 188.2(5) applies, the provision of the mining activity is subject to the general GST/HST rules.
Sales of Bitcoin and other virtual payment instruments
Bitcoins meet the definition of a “virtual payment instrument” as defined in subsection 123(1). This definition is deemed to have come into force on May 18, 2019. The financial instrument definition in subsection 123(1) was amended with effect from May 18, 2019 to include virtual payment instruments. The impact is that sales of virtual payment instruments such as Bitcoins made on or after May 18, 2019, would be exempt supplies of financial services.
The sale of Bitcoins (or any other type of cryptoasset) made prior to May 18, 2019 is a taxable supply of intangible personal property (“IPP”). The supply is deemed to be made in Canada under subsection 142(1), where the IPP may be used in whole or in part in Canada, or the IPP relates to real property situated in Canada, to tangible personal property ordinarily situated in Canada or to a service to be performed in Canada.
Sales of Bitcoins (or any other type of cryptoasset) made prior to May 18, 2019 are zero-rated when made to a non-resident who is not registered for GST/HST purposes in accordance with section 10.1 of Part V of Schedule VI unless the supply is made to an individual that is inside Canada at the time of the supply. In these circumstances, the supplier would need to substantiate that those supplies are made to a non-resident person that is not registered for GST/HST purposes. Further guidance in this regard can be found in GST/HST Info Sheet GI-034: Exports on Intangible Personal Property.
Cryptoasset Mining before February 5, 2022
Prior to February 5, 2022, where a person performs a mining activity of validating transactions and adding them to a publicly distributed ledger as a solo miner, the provision of those activities would be considered a taxable supply for GST/HST purposes. However, since there is typically no identifiable recipient of this taxable supply, and no identifiable liability for payment in respect of the supply, there is generally no consideration for such a supply and therefore no obligation to collect and remit the GST/HST. Accordingly, no GST/HST is applicable in respect of the taxable supply made by a solo miner that performs a mining activity and receives a mining payment before February 5, 2022.
Any person making taxable supplies in Canada may be eligible to claim ITCs on their inputs if they meet certain conditions. For example, in order for a person to be eligible to claim an ITC, a person must generally be making taxable supplies for consideration in the course of the endeavour of the person.
Subsection 141.01(4) can apply in certain circumstances where acquisitions relate to making taxable supplies for no consideration and it can reasonably be regarded that the supply for no consideration is made for the purpose of facilitating, furthering or promoting an endeavour of any person. In these cases, the ITC entitlement is based on the commercial activity of that other endeavour. Based on the application of subsections 141.01(2) and (4), ITCs may be available, subject to the conditions in section 169, to the extent that a person performs a mining activity of validating transactions and adding them to a publicly distributed ledger and:
* the person acquired, imported, or brought into a participating province property or services before May 18, 2019;
* that property or those services were consumed, used or supplied by the person in the course of validating transactions and adding them to a publicly distributed ledger;
* the rewards and transaction fees that would be paid to the person upon success for those mining activities were cryptoassets, such as Bitcoins, that would meet the virtual payment instrument definition in subsection 123(1); and
* the person intended, at the time of acquiring, importing or bringing into a participating province the property or service, to acquire the virtual payment instruments as a result of its mining activities for the purpose of supplying those instruments as a commercial activity.
The definition of a “virtual payment instrument” in subsection 123(1) of the ETA came into force on May 18, 2019. From May 18, 2019, sales of virtual payment instruments such as Bitcoins are exempted as supplies of financial services pursuant to section 1 of Part VII of Schedule V to the Act. Accordingly, there are no ITC entitlements related to these activities on or after May 18, 2019.
Any capital property that the person held as of May 18, 2019, is subject to the change-in-use provisions in the ETA where supplies made after May 17, 2019, of the virtual payment instruments, acquired as a result of this mining activity, were not supplies made in the course of the person’s commercial activities.
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 interpretation(s) given in this letter, including any additional information, is not a ruling and does not bind the Canada Revenue Agency (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.
CONTACT
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 289-356-7396.
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,
Peter Pushkarna
Senior Rulings Officer
Strategic and Emerging Issues Unit
General Operations and Border Issues Division
GST/HST Rulings Directorate
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