GST/HST Notices - Notice 324
March 2024

This version replaces the one dated February 2023. This notice has been updated to reflect the addition of section 188.2 and the amendment of the definition of commercial service in subsection 123(1).

Except as otherwise noted, all statutory references in this publication are to the provisions of the Excise Tax Act (ETA). The information in this publication does not replace the law found in the ETA and its regulations.

If this information does not completely address your particular situation, you may wish to refer to the ETA or relevant regulation, or call GST/HST Rulings at 1‑800‑959‑8287 for additional information. If you require certainty with respect to any particular GST/HST matter, you may request a ruling. GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, explains how to obtain a ruling or an interpretation and lists the GST/HST rulings centres.

If you are located in Quebec and wish to request a ruling related to the GST/HST, please call Revenu Québec at 1‑800‑567‑4692. You may also visit the Revenu Québec website at revenuquebec.ca to obtain general information.

For listed financial institutions that are selected listed financial institutions (SLFIs) for GST/HST or Quebec sales tax (QST) purposes or both, whether or not they are located in Quebec, the CRA administers the GST/HST and the QST. If you wish to make a technical GST/HST or QST enquiry related to SLFIs, please call 1‑855‑666‑5166.

GST/HST rates

Reference in this publication is made to supplies that are subject to the GST or the HST. 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%. If you are uncertain as to whether a supply is made in a participating province, refer to GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax – Place of Supply Rules for Determining Whether a Supply is Made in a Province.

Table of contents

• Background
• Mining activities in respect of cryptoassets
  • What is a cryptoasset?
  • What is a mining activity?
• Mining activities in respect of cryptoassets section 188.2
  • What are the implications for a person that performs a mining activity?
    • Collection of tax
    • Eligibility for ITCs
    • Self-assessments
  • What are the implications for a person that provides a mining payment?
    • Collection of tax
    • Eligibility for ITCs
  • What are the implications in circumstances where subsection 188.2(5) applies?
• Mining groups and mining group operators
• Amendment to the definition of commercial service
• Mining activities in respect of cryptoassets prior to February 5, 2022
  • Solo miners
    • Collection of tax
    • ITCs where virtual payment instruments are payable in respect of mining activities
    • ITCs in other circumstances
    • Self-assessments
  • Mining with others

Background

In the cryptoasset industry, most cryptoasset networks 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.

Section 188.2 addresses the application of the GST/HST to these activities (and other related activities) in respect of cryptoassets.

Mining activities in respect of cryptoassets

What is 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.

A cryptoasset includes any property that is a virtual payment instrument as defined in subsection 123(1).

A virtual payment instrument is defined as "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

1. 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,
2. is primarily for use within, or as part of, a gaming platform, an affinity or rewards program or a similar platform or program, or
3. is prescribed property".

There is currently no prescribed property for the purpose of this definition.

This definition is deemed to have come into effect 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 supplies of virtual payment instruments made on or after May 18, 2019, would be financial services under the ETA. Supplies of these types of cryptoassets made before May 18, 2019, are supplies of intangible personal property and are subject to the GST/HST.

The cryptoasset definition in subsection 188.2(1) includes virtual payment instruments as well as property that may be excluded from the virtual payment instrument definition such as, security tokens, utility tokens or non-fungible tokens.

What is a mining activity?

A mining activity is defined in subsection 188.2(1) to mean "an activity of

1. validating transactions in respect of a cryptoasset and adding them to a publicly distributed ledger on which the cryptoasset exists at a digital address;
2. maintaining and permitting access to a publicly distributed ledger on which a cryptoasset exists at a digital address; or
3. 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."

The definition includes under paragraph (a) validating transactions in respect of a cryptoasset and adding them to the publicly distributed ledger. The validating of transactions may be performed by any one of the various methods that cryptoasset networks use such as those that are commonly referred to as proof-of-work or proof-of-stake protocols. In addition, paragraph (c) of the definition would include, for example, a person that allows another person to use their equipment to carry out the validating of transactions and adding them to the publicly distributed ledger. In this case, both persons would be performing mining activities.

Mining activities in respect of cryptoassets section 188.2

What are the implications for a person that performs a mining activity?

Collection of tax

Subject to the exclusion in subsection 188.2(5), where a person receives a mining payment in respect of a mining activity, 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 is not required to charge the GST/HST in respect of the provision of the mining activity. This applies 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 payment in respect of a mining activity is defined in subsection 188.2(1) as money, property or a service that is a fee, reward or other form of payment that is received or generated as a consequence of the mining activity being performed. A mining payment would include the block subsidies and transaction fees from the network received by the person that performs the mining activity. A mining payment would also include other types of remuneration received from other persons for the performance of a mining activity.

Eligibility for ITCs

Subject to the exclusion in subsection 188.2(5), 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. This is set out in subsection 188.2(2). Accordingly, the person is not eligible to claim input tax credits (ITCs) with respect to such property or services acquired, imported or brought into a participating province after February 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 in accordance with subsection 188.2(3). This applies if the consumption, use or supply of the property or a service occurs after February 4, 2022.

Self-assessments

The person must also consider the requirement to self-assess tax under Division IV with regard to imported taxable supplies as the exclusion from the definition of imported taxable supply for property or services acquired for consumption, use or supply exclusively in the course of commercial activities does not generally apply for property or services acquired for consumption, use or supply in whole or in part in mining activities. In addition, the person must also consider the requirement to self-assess tax under Division IV.1 with respect to any property or services that are brought into a participating province.

What are the implications for a person that provides a mining payment?

Collection of tax

Subject to the exclusion in subsection 188.2(5), paragraph 188.2(4)(b) provides that the provision of a mining payment in respect of a mining activity is deemed not to be a supply. This applies in respect of mining payments provided after February 4, 2022.

Eligibility for ITCs

Subject to the exclusion in subsection 188.2(5), in determining an ITC of a person that provides the mining payment, paragraph 188.2(4)(c) sets out that no amount is to be included in respect of the GST/HST that becomes payable, or is paid without having become payable, by the person in respect of any property or service acquired, imported or brought into a participating province for consumption, use or supply in the course of, or in connection with, the provision of the mining payment by the person. Paragraph 188.2(4)(c) applies in respect of any property or service acquired, imported or brought into a participating province after February 5, 2022.

What are the implications in circumstances where subsection 188.2(5) applies?

Subsection 188.2(5) provides an exclusion to the rules set out in subsections 188.2(2) to (4). Subsection 188.2(5) applies where the mining activity is performed by a supplier for another person if:

• the identity of the other person is known to the supplier;
• where the mining activity is in respect of a mining group that includes the supplier; the other person is not a mining group operator in respect of the mining group; and
• where the other person is a non-resident and is not dealing at arm's length with the supplier, each property or service received by the other person from the supplier 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
  • is a person whose identity is known to the other person;
  • deals at arm's length with the other person; and
  • 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 rules in subsections 188.2(2), (3) and (4) do not apply. In these circumstances, the provision of the mining activity is subject to the general GST/HST rules.

Mining groups and mining group operators

Pursuant to subsection 188.2(1) a mining group means "a group of persons that, under an agreement,

1. pool property or services for the performance of mining activities; and
2. share mining payments in respect of the mining activities among members of the group."

A mining group operator is defined in subsection 188.2(1) in respect of a mining group to mean "a person that coordinates, oversees or manages the mining activities of the mining group."

A mining group may have as few as two members, for example, the mining group operator and another person. A mining group may also be formed as a result of several agreements. For example, a mining group composed of a mining group operator and five other persons may be under five different agreements, each made between the mining group operator and one of the five other persons.

A mining group operator may coordinate several separate groups of persons performing mining activities. In these circumstances, each group of persons that under a common agreement agree to pool property or services and share with all or part of the group all or part of any fee, reward or any other form of payment, received or generated as a consequence of performing the mining activities, would constitute a separate mining group.

A mining group is a group of persons that agree to contribute property or services to perform mining activities together. In addition, the group of persons share mining payments in respect of the mining activities. A mining group may be commonly referred to as a mining pool however a mining pool may not necessarily meet the definition of a mining group for the purposes of section 188.2. Although a particular person may be a member of a mining pool, that same person would not be a member of the mining group for the purposes of section 188.2 if that person does not share in the mining payments of the group. Accordingly, there may be some persons in a mining pool that are members of the mining group for purposes of section 188.2 while other persons in the mining pool are not members of the mining group.

A person shares mining payments when the person shares in the risk of success in the mining activities of the group. This is a question of fact and must be determined on a case-by-case basis. Where a person receives a direct share of the actual mining payment, or a payment or adjustment that is determined based on the actual mining payment earned by the pool or the operator, the person is generally considered to share in the mining payments. However, where a person earns compensation that is determined based on an estimate of potential mining payments and the amounts are not adjusted to the actual mining payments, the person may not be considered to share in the mining payments. Another factor to consider in determining whether persons share mining payments within a mining group is whether the operator charges fees to persons with respect to the management or administration of the mining endeavours.

In making such determinations, the following types of arrangements for mining would be indicative of a person and a mining pool operator not being members of the same mining group for the purposes of section 188.2:

• The person is paid by the mining pool operator for the contribution of computing resources by the person and the payment is based on the expected value of the number of blocks validated regardless of whether the activity gives rise to an actual block subsidy or transaction fee. The mining pool operator accepts all of the risk with respect to the person's contribution to the pool as well as benefitting from the actual number of blocks successfully validated and the transaction fees earned. There is no adjustment of the payment received by the person based on the actual block subsidy received by the mining pool operator. The person bears no risk with regards to the mining endeavour itself aside from the ordinary risks that a supplier would encounter in their business such as market risks, equipment risks or foreign exchange risks.
• The person is paid by the mining pool operator for the contribution of computing resources by the person and the payment is based on the expected value of the number of blocks validated regardless of whether the activity gives rise to an actual block subsidy or transaction fee. The mining pool operator accepts all of the risk with respect to the person's contribution to the pool as well as benefitting from the actual number of blocks successfully validated and the transaction fees earned. There is no adjustment of the payment received by the person based on the actual block subsidy or actual transaction fees received by the mining pool operator. The person bears no risk with regards to the mining endeavour itself aside from the ordinary risks that a supplier would encounter in their business such as market risks, equipment risks or foreign exchange risks.

In these above arrangements, the person bears no risk in the success of earning the block subsidy and transaction fees. In these cases, where the agreements between the person and the pool operator and any accompanying terms and conditions relevant to the arrangements between the parties support that the arrangements are as set out in the preceding paragraph, this is a supply made by the person providing its computing resources to the pool operator and the person does not share in the mining payments for the purposes of the mining group definition in subsection 188.2(1). Such a supply is subject to the general GST/HST rules under the ETA. Furthermore, in these circumstances, where any amounts are deducted by the pool operator from the payment made to the person, the consideration for the person's supply to the pool operator would be the payment less the deducted amount unless there is clear indication under the arrangements between the parties that the reduction is in respect of a supply made by the pool operator to the person.

Amendment to the definition of commercial service

The definition of commercial service in subsection 123(1) is amended, and effective as of February 5, 2022, to exclude a service in respect of goods that is acquired for consumption, use or supply in the course of, or in connection with, the performance of a mining activity (as defined in subsection 188.2(1)) in Canada.

The implications for services in respect of goods supplied by a GST/HST registrant to an unregistered non-resident for consumption, use or supply in the course of, or in connection with, the performance of mining activities in Canada include:

• the services would not be deemed to be made outside Canada under the section 179 drop-shipment provisions;
• the GST/HST registrant cannot use the section 180 rules to claim an ITC on the goods if the non-resident paid tax under Division III upon importation of the goods or in respect of a deemed supply of the property made by the registrant under subsection 179(1); and
• the GST/HST registrant cannot claim an ITC under section 169 for tax they paid on the importation of the goods of the non-resident.

Mining activities in respect of cryptoassets prior to February 5, 2022

The GST/HST treatment of mining activities conducted before February 5, 2022 is based on the GST/HST provisions under the ETA that were in effect before that date.

There are two ways of performing mining activities in respect of cryptoassets, the persons can either:

• engage in mining activities on their own (solo miners)
• conduct their activities collectively with others (mining with others)

Solo miners

On a publicly distributed ledger, such as a public blockchain, anyone can join and participate in the network which operates through the collective effort of each of the participants on the network. In these cases, there is typically no agreement that sets out a legally enforceable obligation for any one person to pay the blockchain rewards or transaction fees or an enforceable right for the person that performs a mining activity of validating transactions and adding them to a publicly distributed ledger to receive these payments. There is no corresponding liability on any particular person to make any payment to the person in respect of the supply made to the cryptoasset network and there is no person to whom the service is rendered. Therefore, there is no identifiable recipient, as that term is defined in the ETA, of the mining activities supplied to the cryptoasset network.

Collection of tax

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 that is engaged in a commercial activity, 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.

ITCs where virtual payment instruments are payable in respect of mining activities

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 that would meet the virtual payment instrument definition in subsection 123(1)
• 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

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.

Where after May 17, 2019, the person acquires, imports or brings into a participating province property or services that are consumed, used or supplied by the person in the course of validating transactions and adding them to a publicly distributed ledger, the person would not be eligible to claim ITCs in respect of that property or those services where the supply of a virtual payment instrument, acquired as a result of this mining activity, was not a commercial activity.

ITCs in other circumstances

Where a person acquires, imports or brings into a participating province property or services that are consumed, used or supplied by the person in the course of validating transactions and adding them to a publicly distributed ledger, ITCs may be available, subject to the conditions in section 169, to the extent that:

• the rewards and transaction fees that would be paid to the person upon success are cryptoassets that would not meet the virtual payment instrument definition; and
• at the time of acquiring, importing or bringing into a participating province the property or service, any supply of the cryptoasset that would be earned upon success would be a commercial activity.

In circumstances, whereby the supply of the cryptoasset that would be earned upon success would not be a commercial activity, no ITC entitlement would arise.

Self-assessments

The person would need to consider the requirements to self-assess tax under Divisions IV and IV.1 where the supply of the cryptoasset by the person was not a commercial activity.

Mining with others

Where a person is involved in mining with others prior to February 5, 2022, the nature of the arrangements determines the GST/HST application. This requires an analysis of the arrangements on a case-by-case basis.

In certain circumstances, parties may pool their collective resources and share in the risk and rewards of the mining endeavour. Where a person is mining with others under an arrangement that is a mining pool or mining group, the arrangements may have the characteristics of a joint venture arrangement. In other types of arrangements, a person may be mining in their own capacity but utilizing the resources of a mining group through the mining group operator to gain access to the network and to better achieve success in a mining endeavour. In these types of mining arrangements, the person is generally making a supply of its mining activities of validating transactions and adding them to a publicly distributed ledger to the cryptoasset network and not making a supply to any mining group operator of the arrangement. Each particular person within the group is considered to perform these mining activities in a similar fashion as a solo miner. Accordingly, the GST/HST treatment applied to solo miners would also apply in these circumstances. The supply would not be subject to the GST/HST as there is no recipient of the supply of the mining activity and the person would generally only be eligible to claim ITCs to the extent set out previously for solo miners. The requirements to self-assess tax under Divisions IV and IV.1, as set out previously for solo miners, may also need to be considered.

Alternatively, there may be other arrangements where a supplier performs mining activities under a structure whereby the supplier makes the supply to a person and that person uses those mining activities to make a supply to either another person or to the cryptoasset network. In these circumstances, the person does not share in the risk and rewards of the mining endeavour. In these cases, there is generally a supply of mining activities made to an identifiable recipient of the supply and these supplies would be subject to the general GST/HST rules under the ETA. In these circumstances, the supply of the mining activity would ordinarily be a taxable supply and the person may be eligible to claim ITCs for property and services acquired, imported or brought into a participating province that are consumed, used or supplied in the course of the mining activity.

In the case of mining with others, the arrangements between the parties must be considered to determine the proper GST/HST treatment. Some factors to consider in making the determination are the nature of the payment terms between the parties, the existence of fees payable to an operator for the management and/or administration of the pool, the degree of control that the operator has over the use of the person's contribution and the extent to which the supplier shares in the risk of the mining endeavour with others.

In making such determinations, the following types of arrangements for mining would be indicative of a supply made by the person to mining pool operator:

• The person is paid by the mining pool operator for the contribution of computing resources by the person and the payment is based on the expected value of the number of blocks validated regardless of whether the activity gives rise to an actual block subsidy or transaction fee. The mining pool operator accepts all of the risk with respect to the person's contribution to the pool as well as benefitting from the actual number of blocks successfully validated and the transaction fees earned. There is no adjustment of the payment received by the person based on the actual block subsidy received by the mining pool operator. The person bears no risk with regards to the mining endeavour itself aside from the ordinary risks that a supplier would encounter in their business such as market risks, equipment risks or foreign exchange risks.
• The person is paid by the mining pool operator for the contribution of computing resources by the person and the payment is based on the expected value of the number of blocks validated regardless of whether the activity gives rise to an actual block subsidy or transaction fee. The mining pool operator accepts all of the risk with respect to the person's contribution to the pool as well as benefitting from the actual number of blocks successfully validated and the transaction fees earned. There is no adjustment of the payment received by the person based on the actual block subsidy or actual transaction fees received by the mining pool operator. The person bears no risk with regards to the mining endeavour itself aside from the ordinary risks that a supplier would encounter in their business such as market risks, equipment risks or foreign exchange risks.

In these above arrangements, the person bears no risk in the success of earning the block subsidy and transaction fees. In these cases, where the agreements between the person and the pool operator and any accompanying terms and conditions relevant to the arrangements between the parties support that the arrangements are as set out in the preceding paragraph, this is a supply made by the person providing its computing resources to the pool operator. Such a supply is subject to the general GST/HST rules under the ETA. Furthermore, in these circumstances, where any amounts are deducted by the pool operator from the payment made to the person, the consideration for the person's supply to the pool operator would be the payment less the deducted amount unless there is clear indication under the arrangements between the parties that the reduction is in respect of a supply made by the pool operator to the person.

Further information