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
[Client Address]
Case Number: 246382
Dear [Client]:
Subject: GST/HST INTERPRETATION
Mining activities in respect of cryptoassets concerning mining pools
Thank you for your correspondence of August 31, 2023, concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to mining activities in respect of cryptoassets concerning mining pools.
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.
We understand you wish to clarify whether certain computer service providers (CSPs) in Canada operating in the cryptoasset industry are permitted to claim input tax credits (ITCs) on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022.
We understand the arrangements concerning mining activities in respect of cryptoassets that involve mining pools to operate generally as follows:
1. The key participants involved in […][cryptoasset] mining are a CSP who own or lease and maintain the mining rig, highly specialized computers, and contribute their computing resources to a mining pool and a Mining Pool Operator (Operator) that coordinates, oversees or manages the computing resources contributed by many CSPs from around the world in order for the mining pool to secure, also known as “mine”, the [cryptoasset] blockchain by validating transactions.
2. When a mining pool successfully adds a block to the [cryptoasset] blockchain, the mining pool receives a “block reward”. The “block reward” totals two amounts: the total of all transaction fees pledged by the transferors whose transaction are included in the particular block that the mining pool has added to the blockchain, plus a “block subsidy” -- a subsidy awarded of newly minted [cryptoasset] by the [cryptoasset] protocol.
3. The block reward - the aggregate transaction fees and block subsidy - is deposited into the wallet designated by the person who computed the correct hash to add the next block to the blockchain. If a person is self-mining with their own computer, the block reward is deposited into their wallet. In the case of a mining pool, if one of the computers of a CSP processes the correct hash, the block reward is deposited into the wallet owned and designated by the Operator.
4. The four most common forms of payment by which a CSP receives for their computing contributions to a mining pool are:
a. Pay-Per-Share (“PPS”) where the Operator pays each CSP for the computing contributions by the CSP during a specific period of time based on the total block subsidy that the mining pool expects to earn over a period of time. In other words, the Operator is paying the CSP based on an estimate of the block subsidies that the mining pool expects to receive, not on the basis of the actual blocks mined and block rewards earned by the mining pool. The CSP bears no risk associated with mining a block and the mining pool receives all actual block rewards (the actual block subsidy + actual transaction fees).
b. Full-Pay-Per-Share (“FPPS”) where the Operator pays each CSP for the computing contributions by the CSP during a specific period of time based on the expected block subsidy and the estimated transactions fees. The estimated transaction fees are generally the average transaction fees earned on the last 144 blocks added to the [cryptoasset] blockchain. Similar to PPS, the Operator is paying the CSP based on an estimate of the expected block rewards, rather than the actual block rewards received by the mining pool. In FPPS, the CSP bears no risk associated with mining a block and the mining pool receives the actual block rewards.
c. Pay-Per-Last-N-Share (“PPLNS”) where the Operator pays the CSP for the computing contributions by the CSP during a specific period of time based on the actual block reward earned and received by the mining pool during that time. With PPLNS, the amount that the Operator pays a particular CSP is contingent on the number of blocks successfully mined by the mining pool and block subsidies earned by the mining pool.
d. Pay-Per-Share-Plus (“PPS+”) where the Operator pays the CSP for the computing contributions by the CSP during a specific period of time based on the expected block subsidy the mining pool expects to earn, and on the actual transaction fees earned by the pool during that time. Similar to PPLNS, with PPS+ the amount that the CSP receives is partially contingent – in that it is based on the actual transaction fees earned by the mining pool from the transferors but is partially fixed as being based on the expected block subsidy the mining pool expects to receive during the particular period.
5. A mining pool will utilize computing resources from multiple CSPs. The terms and conditions governing the operations of a particular mining pool are usually stipulated on the pool’s website. However, CSPs may have their own specific separate agreement with the Operator in respect of a mining pool and each may elect how they wish to be paid for their computing contributions.
6. With each payment method - PPS, FPPS, PPLNS, PPS+ - the amount payable to a particular CPS is not based on the entire estimated or actual block rewards anticipated or actually earned by the mining pool. Each formula typically starts with a percentage reduction that is payable to the Operator. For example, a particular Operator may retain two per cent (2%) and pay a particular CSP an amount for its computing resources contributed calculated as 98% of the estimated or actual block rewards of the mining pool and the percentage share of the particular CSP’s computing resources that was contributed to the mining pool. This initial percentage reduction retained by the Operator may be negotiated between a particular Operator on behalf of the mining pool and CSPs that make significant contributions to the mining pool with the percentage generally being lower the greater the hash rate the CSP contributes to the mining pool.
7. A CSP is generally not required to contribute any particular amount of computing resources to a mining pool and may start and stop contributing computing services to a particular mining pool at any time without restriction or penalties.
8. CSPs may have agreements for the contribution of their computing resources with multiple mining pools at any given time and may unilaterally determine the amount of computing resources that they contribute to each mining pool at any given point in time. The CSPs may elect to switch which mining pool they contribute their computing resources to at any time without restriction or penalties.
INTERPRETATION REQUESTED
You would like to know the following to determine whether CSPs in Canada are entitled to claim ITCS on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022.:
- Whether CSPs in Canada and the Operators are engaged in a joint venture prior to February 5, 2022.
- Whether the CSPs are making a supply of computing resources to an identifiable recipient, the Operator.
Specifically, you are looking for an interpretation from CRA to confirm the following GST/HST treatments under the following scenarios:
1. A CSP contributing computing resources to a mining pool operated by Company A in exchange for payments in the form of FPPS does not form a joint venture with Company A, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022;
2. A CSP contributing computing resources to a mining pool operated by Company B in exchange for payments in the form of FPPS does not form a joint venture with Company B, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022;
3. A CSP contributing computing resources to a mining pool operated by Company C in exchange for payments in the form of FPPS does not form a joint venture with Company C, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022;
4. (a) A CSP contributing computing resources to a mining pool operated by Company D in exchange for payments in the form of FPPS does not form a joint venture with Company D, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022; and
(b) A CSP contributing computing resources to a mining pool operated by Company D in exchange for payments in the form of PPLNS does not form a joint venture with Company D, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022;
5. A CSP contributing computing resources to a mining pool operated by Company E in exchange for payments in the form of PPLNS does not form a joint venture with Company E, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022; and
6. A CSPs contributing computing resources to a mining pool operated by Company F in exchange for payments in the form of PPS+ does not form a joint venture with Company F, and, instead, the CSP is making a supply to an identified recipient, and the CSP is entitled to claim ITCs on GST/HST paid on expenses in the course of their commercial activities prior to February 5, 2022.
[…].
INTERPRETATION GIVEN
We provide the below information concerning our position with regards to mining activities with respect to cryptoassets. This information can also be found in GST/HST Notice 324 Mining Activities in respect of Cryptoassets.
We note that, while a particular CSP may join a mining pool in a general sense (as set out above), where a CSP is determined to be making a supply to the Operator (as discussed later in this document), the CSP is not considered to be a member of a mining pool for GST/HST purposes with the members of the pool that share in the risk with the Operator. Where no person shares risks with the Operator, a mining pool would not exist for GST/HST purposes.
GST/HST Notice 324
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.
On June 22, 2023, the Budget Implementation Act, 2023 (BIA) received royal assent. The BIA enacted new section 188.2 of the ETA which contains rule respecting the application of the 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.
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 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, supplies of virtual payment instruments 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.
Where a person is involved in mining with others prior to February 5, 2022, the nature of the arrangements determines the GST/HST application and is determined on a case-by-case basis. In certain cases, 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 cases, a person may be mining in their own capacity but utilizing the resources of a mining pool through the mining pool operator to gain access to the network and to better achieve success in a mining endeavour. In these cases, 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 pool operator of the arrangement. Each particular person within the pool is considered to perform the mining activities in a similar fashion as a solo miner, therefore, 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 similarly to solo miners.
There may also be 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 cases, the person does not share in the risk and rewards of the mining endeavour. 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. Factors to be considered include 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.
The following types of arrangements for mining would be indicative of a supply made by the person to a 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 abased 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.
- 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.
In arrangements as above, the person bears no risk in the success of earning the block subsidy and transaction fees. 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 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. 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.
Joint Ventures
You have requested our guidance on whether the arrangements under the proposed scenarios constitute a joint venture. Of note, in accordance with GST/HST Memoranda 1.4, we do not provide a ruling concerning whether a particular arrangement constitutes a joint venture. This is generally determined by a written agreement and is a question of law.
There are a number of indicators that assist in determining whether a joint venture exists. These indicators include, but are not limited to:
- whether the arrangement is one in which two or more persons work together in a limited and defined business undertaking;
- the intention of the parties, which is often apparent in their conduct, the nature of the undertaking and the other circumstances of the arrangement;
- a written joint venture agreement;
- whether the arrangement is confined to a particular defined business undertaking which may be short or long term in duration and/or has a specific termination date and allows the participants to carry on their business outside the joint venture;
- whether the activities require continuous attention of every participant;
- whether there a right of mutual control;
- whether there is contribution by each participant. This could be money, property, knowledge, skills, experience or time;
- whether the participants develop an interest in the joint venture’s production during the term of the agreement and the agreement confers on each participant an interest in the production equal to the participant’s specified interest;
- whether there is a well-defined separation of interests in and ownership of the property subject to the joint venture;
- whether the participants retain any property they contribute to be used in the venture, unless an interest in the property is supplied o one or all of the other participants;
- whether the participants are able to sell their interest in the joint venture without obtaining the consent of the other joint venture participants to do so;
- whether the participants have a joint undivided interest in all the property;
- whether the participants are carrying on a business or are involved in an adventure or concern in the nature of trade;
- whether there is an expectation of profit (a tangible or intangible benefit);
- whether the profits and/or losses are shared;
- whether the participants are liable for their respective portions of the expenses;
- what the limitation of liabilities are i.e., the rights to enter a contract;
- the income tax treatment; and
- the format of the agreement.
These indicators are discussed in P-171R Distinguishing Between a Joint Venture and a Partnership for the Purposes of the Section 273 Joint Venture Election.
The following information is being provided to assist you in making the determination of whether a person is providing a supply and entitled to claim ITCs, however the determination of whether a joint venture exists cannot be made as explained above.
Your Scenarios
You have requested our guidance as it pertains to numerous scenarios that you have posed. Further to Notice 324, the arrangements between the parties must be considered to determine the proper GST/HST treatment. Factors to be considered include 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.
With regards to the payment terms between the parties, we address the various payment methods below commonly used in the mining activities of cryptoassets.
A PPS payment method typically sees the CSP receiving payments for its contributions of computing resources based on the expected block subsidy that the mining pool expects to earn based on the CSP’s contributions to the mining pool.
A FPPS payment method typically sees the CSP receiving payments for its contributions of computing resources based on the expected block subsidy and the expected transactions fees that the mining pool expects to earn based on the CSP’s contributions to the mining pool.
For both the PPS and the FPPS payment methods, even though a CSP may receive a payment based on the expected block subsidy and/or transaction fees, where there is a subsequent adjustment made to such payments, the payment method in those circumstances would give indication that the CSP is sharing in the risk of the mining endeavour. This would not give indication that the CSP is making a supply to the Operator. With regards to adjustments to payments, it is important to note what constitutes an adjustment to a payment and what constitutes a change to a method of calculating a future payment. Consider an example where a CSP is paid under a payment method that sees the CSP receive a payment on June 1st that is calculated based on an “X” value as it pertains to the use of CSP’s computing resources that would give rise to expected block subsidies and/or transaction fees for the mining pool. The payouts for contributors of computing resources to the mining pool are adjusted on a daily basis and on June 2nd the payout amounts are modified to be calculated based on a “Y” value as it pertains to the use of CSP’s computing resources that would give rise to expected block subsidies and/or transaction fees for the mining pool. If a CSP’s payments based on the “X” value received for its June 1st contributions are subsequently adjusted to reflect the June 2nd payout based on the “Y” value, this would be considered an adjustment to the payment and the initial payment received by the CSP on June 1st is considered an advanced payment whereas the adjustment indicates a payment method that is based on the actual block subsidy and/or transaction fees received by the mining pool. This type of payment arrangement indicates that the CSP shares in the mining endeavour and is not making a supply to the Operator. If, however, there is no adjustment to the CSP’s June 1st payment and rather the adjusted payout based on the “Y” value only applies to payments on June 2nd and thereafter, there is no adjustment to the CSP’s payments, and this would not give indication that the CSP is sharing in the mining endeavour.
For both the PPS and the FPPS payment methods where there are no such adjustments made to these payments, this payment method can give indication that the CSP is not sharing in the risk of the mining endeavour and is making a supply to the Operator. This indication is not determinative and must be supported by the agreements between the parties. Typically, an agreement between a CSP and an Operator in respect of the mining activities with regards to a mining pool will be governed by the general terms and conditions of the mining pool. These terms and conditions are ordinarily available on the website for the particular mining pool. Some pools may require other agreements between the CSP and the Operator to be entered into. In other circumstances, certain CSPs may be in a position to enter into separate agreements with an Operator under which separate terms and conditions are in place that override the general terms and conditions on the website with respect to the mining pool. The agreements between the parties will ultimately determine whether a CSP makes a supply of its computer resources with respect to a particular mining pool. Where the terms and conditions of an agreement between the parties establish that the Operator makes supplies to the CSP under the arrangements however there are no terms and conditions that establish that the Operator acquires supplies from the CSP, it cannot be substantiated that the CSP makes a supply to the Operator under the arrangements regardless of the payment method utilized.
With regards to the PPNLS and PPS+ payment methods, the nature of the payment methods indicates that the CSP is sharing in the risk of the mining endeavour to an extent. Under the PPLNS payment method, the CSP receives payment based on the actual block subsidy earned by the mining pool. Under the PPS+ payment method, although the CSP receives payments based on the expected block subsidy earned by the mining pool, the CSP also earns payments based on the actual transaction fees earned by the mining pool. Under both methods, the CSP shares in the risk, to an extent, in respect of the mining endeavour. In these circumstances, the CSP is 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 the Operator.
In addressing these key factors towards making a determination in respect of a specific arrangement or scenario, it is important to understand that the payment methods and the other factors of the arrangements between the parties must be assessed based on the specific period in question. The cryptoasset mining industry is an ever-evolving industry. In that regard, where the payment methods or the terms and conditions of the agreements between the parties have changed over time, the GST/HST treatment applicable in respect of a particular reporting period must be determined based on the specific arrangements that were in place during the relevant reporting period.
Your interpretation request was limited to transactions that occurred prior to February 4, 2022. Accordingly, our comments below are limited to those circumstances. […].
Scenario #1
In this scenario, we understand the following from the information that you have provided:
- Company A is a corporation that is incorporated and operates […][outside Canada] and is an Operator of a mining pool;
- Company A does not use or own substantial machinery or equipment in Canada at any time. Company A does not have a right, lease or licence in respect of a CSP’s computer equipment;
- A CSP contributes its computing resources to a mining pool operated by Company A in exchange for payments under the FPPS payment method. The payment that the CSP receives is based on the expected block subsidy and expected transaction fees that that the mining pool is expected to earn on a particular blockchain network.
- A CSP receives payment in the form of [cryptoasset] based on the estimated revenue calculation […]. The calculation factors in a CSP’s particular pool rate;
- A CSP’s payment is not tied to the success of the actual performance of the mining pool. Payments are not based on the actual block subsidy and actual transaction fees received by the mining pool; and
- Company A’s payment processor runs every hour and makes automatic payments for accounts that meet the minimum payment threshold. A CSP receives payment irrespective of Company A’s success during any given hour;
- Under Company A’s terms and conditions, Company A acknowledges that it is purchasing hash rate from the CSP and has exclusive control over the mining pool and the purchased hash rate.
In these circumstances, the CSP is paid for the contribution of its computing resources during a specific period of time based on the expected block subsidy and the estimated transactions fees. From the information provided, there is no indication that there may be adjustments to the payments that the CSP receives such that the CSP would bear some risk in respect of the mining endeavour. In a FPPS payment arrangement, generally the Operator bears the risk associated with mining a block […]. There is indication from Company A’s terms and conditions that supports that the Operator would bear the risk in respect of the mining endeavour. In these circumstances, to the extent that the rest of the terms and conditions and any other specific agreements between the CSP and the Operator support that the CSP does not share in the risk of the mining endeavour and that the CSP is making a supply to the Operator, the general GST/HST rules would apply to the supply made from the CSP to the Operator and the CSP would be entitled to claim ITCs on the GST/HST paid on expenses that relate to the making of these supplies.
Scenario #2
In this scenario, we understand the following from the information that you have provided:
- Company B is a corporation that is incorporated and operates [outside Canada] and is an Operator of a mining pool;
- Company B does not own or use substantial machinery or equipment in Canada at any time. In particular, Company B does not have a right, lease or licence in respect of a CSP’s computer equipment;
- A CSP contributes its computing resources to a mining pool operated by Company B in exchange for payments under the FPPS payment method. The payment that the CSP receives for its contribution of computing resources is based on the expected block subsidy and expected transaction fees that the mining pool expects to earn on a particular blockchain network;
- A CSP’s earnings are calculated on a daily basis from midnight-to-midnight UTC time by Company B, irrespective of the performance of the mining pool on any given day. Company B makes payments to a CSP one hour after calculating the CSP’s earning; and
- A CSP does not receive payments that true-up the actual block subsidies and actual transaction fees received when the mining pool successfully mines a cryptocurrency.
[…], in these circumstances, in a FPPS payment arrangement, generally the Operator bears the risk associated with mining a block and the CSP does not bear any of the risks. From the information provided, there is no indication that there may be adjustments to the payments that the CSP receives such that the CSP would bear some risk in respect of the mining endeavour. In these circumstances, to the extent that the agreements between the CSP and the Operator including the terms and conditions for taking part in the mining pool, support that the CSP does not share in the risk of the mining endeavour and that the CSP is making a supply to the Operator, the general GST/HST rules would apply to the supply made from the CSP to the Operator and the CSP would be entitled to claim ITCs on the GST/HST paid on expenses that relate to the making of these supplies.
Scenario #3
In this scenario, we understand the following from the information that you have provided:
- Company C is a corporation that operates outside of Canada and is an Operator of a mining pool;
- Company C does not have a fixed place of business in Canada through which they make supplies;
- Company C does not own or use substantial machinery or equipment in Canada at any time. In particular, they do not have a right, lease or licence in respect of the CSP’s computer equipment;
- The CSP contributes its computing resources to a mining pool operated by Company C in exchange for payments under the FPPS payment method. The payment that the CSP receives for its contribution of computing resources is based on the expected block subsidy and expected transaction fees that the mining pool expects to earn on a particular blockchain network; and
- CSP’s payments are not based on the actual block subsidy and actual transaction fees received by the mining pool. The terms of use for the mining pool specifies that a CSP is awarded for the computational power that the CSP provides whether or not the contribution of that computational power results in the mining pool generating any block rewards or transaction. A CSP’s payment is calculated by reference to the hash rate that the CSP contributes during a settlement cycle, which runs from midnight-to-midnight UTC.
[…], in these circumstances, in a FPPS payment arrangement, generally the Operator bears the risk associated with mining a block and the CSP does not bear any of the risk. From the information provided, there is no indication that there may be adjustments to the payments that the CSP receives such that the CSP would bear some risk in respect of the mining endeavour. In these circumstances, to the extent that the agreements between the CSP and the Operator including the terms and conditions for taking part in the mining pool, support that the CSP does not share in the risk of the mining endeavour and that the CSP is making a supply to the Operator, the general GST/HST rules apply to the supply made from the CSP to the Operator and the CSP would be entitled to claim ITCs on the GST/HST paid on expenses that relate to the making of these supplies.
Scenario #4
In this scenario, we understand the following from the information that you have provided:
- Company D operates […][outside Canada] and is an Operator of a mining pool;
- Company D does not have a fixed place of business in Canada through which they make supplies;
- Company D does not own or use substantial machinery or equipment in Canada at any time. In particular, they do not have a right, lease or licence in respect of the CSP’s computer equipment;
- The CSP contributes its computing resources to the mining pool operated by Company D;
- The CSP that contributes its computing resources to the mining pool operated by Company D has the option of selecting either a FPPS or PPLNS payment arrangement for [cryptoasset] mining.
4. (a) Where the CSP chooses to be paid through the FPPS payment method:
- the payment that the CSP receives for its contribution of computing resources is based on the expected block subsidy and expected transaction fees that the mining pool expects to earn; and
- […] the actual income of FPPS is not affected by the mining pool’s luck.
[…], in these circumstances, in a FPPS payment arrangement, generally the Operator bears the risk associated with mining a block and the CSP does not bear any of the risk. From the information provided, there is no indication that there may be adjustments to the payments that the CSP receives such that the CSP would bear some risk in respect of the mining endeavour. In these circumstances, to the extent that the agreements between the CSP and the Operator including the terms and conditions for taking part in the mining pool, support that the CSP does not share in the risk of the mining endeavour and that the CSP is making a supply to the Operator the general GST/HST rules apply to the supply made from the CSP to the Operator and the CSP would be entitled to claim ITCs on the GST/HST paid on expenses that relate to the making of these supplies.
4. (b) Where the CSP chooses to be paid through the PPLNS payment method:
- Payments to the CSP are based on the number of block rewards earned by the mining pool; and
- The CSP receives payments in the form of [cryptoasset] based on the payment calculation for the contribution of the CSP’s computing resources. This calculation factors in a CSP’s particular mining pool rate.
In situations where a CSP contributes its computer resources to a mining pool and receives payment under a PPLNS payment method, the CSP shares in the risk and rewards of the mining pool’s endeavour. In these circumstances, the CSP is not considered to make a supply to the Operator. The arrangements may have the characteristics of a joint venture arrangement. Alternatively, the CSP may be mining in their own capacity but utilizing the resources of a mining pool through the Operator to gain access to the network and to better achieve success in a mining endeavour. In these cases, the CSP is 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 the Operator. Each particular person within the pool is considered to perform the mining activities in a similar fashion as a solo miner, therefore, 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.
In this scenario, a CSP may be entitled to claim ITCs to the extent that subsection 141.01(4) applies. 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:
- the CSP 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 CSP 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 CSP upon success for those mining activities were cryptoassets 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, supplies of virtual payment instruments 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 CSP 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.
Scenario #5
In this scenario, we understand the following from the information that you have provided:
- Company E is a corporation that operates outside of Canada and is an Operator of a mining pool;
- Company E does not have a fixed place of business in Canada through which they make supplies;
- Company E does not use or own substantial machinery or equipment in Canada at any time. In particular, they do not have a right, lease or licence in respect of a CSP’s computer equipment;
- The CSP contributes its computing resources to the mining pool operated by Company E in exchange for payments under the PPLNS payment method. The payment that the CSP receives for its provision of computing services is connected to the number of block rewards earned by the mining pool;
- The PPLNS payments made to the CSP are based on the number of block rewards earned by the mining pool; and
- Company E’s payment processor runs every hour and makes automatic payments for accounts that meet the minimum payment threshold.
In situations where a CSP contributes its computer resources to a mining pool and receives payment under a PPLNS payment method, the CSP shares in the risk of the mining pool’s endeavour. In these circumstances, the CSP is not considered to make a supply to the Operator. The arrangements may have the characteristics of a joint venture arrangement. Alternatively, the CSP may be mining in their own capacity but utilizing the resources of a mining pool through the Operator to gain access to the network and to better achieve success in a mining endeavour. In these cases, the CSP is 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 the Operator. Each particular person within the pool is considered to perform the mining activities in a similar fashion as a solo miner, therefore, 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.
In this scenario, a CSP may be entitled to claim ITCs to the extent that subsection 141.01(4) applies. 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:
- the CSP 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 CSP 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 CSP upon success for those mining activities were cryptoassets 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, supplies of virtual payment instruments 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 CSP 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.
Scenario #6
In this scenario, we understand the following from the information that you have provided:
- Company F is a corporation that operates outside Canada and is an Operator of a mining pool;
- Company F does not have a fixed place of business in Canada through which they make supplies;
- Company F does not use or own substantial machinery or equipment in Canada at any time. In particular, they do not have a right, lease or licence in respect of the CSP’s computer equipment; and
- The CSP contributes its computing resources to the mining pool operated by Company F in exchange for payments under the PPS+ payment method. Under the FPPS+ payment method, the CSP receives payments that are a combination of the expected block subsidy that the mining pool expects to earn and the actual transaction fees earned by the mining pool.
In situations where a CSP contributes its computer resources to a mining pool and receives payment under a PPS+ payment method, the CSP shares in the risk and rewards of the mining pool’s endeavour. In these circumstances, the CSP is not considered to make a supply to the Operator. The arrangements may have the characteristics of a joint venture arrangement. Alternatively, the CSP may be mining in their own capacity but utilizing the resources of a mining pool through the Operator to gain access to the network and to better achieve success in a mining endeavour. In these cases, the CSP is 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 the Operator. Each particular person within the pool is considered to perform the mining activities in a similar fashion as a solo miner, therefore, 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.
In this scenario, a CSP may be entitled to claim ITCs to the extent that subsection 141.01(4) applies. 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:
- the CSP 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 CSP 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 CSP upon success for those mining activities were cryptoassets 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, supplies of virtual payment instruments 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 CSP 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.
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 343-553-3874.
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,
Doris Rist
Strategic and Emerging Issues
General Operations and Border Issues Division
GST/HST Rulings Directorate
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