Newly proposed GST/HST rules for cryptocurrencies

On 17 May 2019, draft legislative changes were released that address the application of Canadian Goods & Services Tax/Harmonized Sales Tax (GST/HST) to cryptocurrencies. Specifically, the newly defined term ‘virtual payment instrument’ was introduced. The term applies to property that is a digital representation of value that functions as a medium of exchange and that only exists at a digital address on a publicly distributed ledger. The term does not apply to property that, among other things:

1. confers a right to be exchanged, redeemed. or converted for money or specific property or services (for example, a gift card); or
2. is primarily for use within, or as part of, a gaming platform, an affinity or rewards program, or a similar platform or program.

The proposed changes provide much needed guidance on the application of GST/HST to cryptocurrencies and address concerns regarding double taxation and place of supply rules for transactions that use cryptocurrencies.  

Unfortunately, many feel the proposed legislation leaves several unanswered questions including whether the mining of currencies is considered to be a commercial activity eligible for input tax credits and how the Canada Revenue Agency (CRA) will view cryptocurrency transactions entered into before 18 May 2019, the date the proposed changes are intended to be applied once the legislation is enacted. There is definitely more to come on the constantly evolving subject of GST/HST and cryptocurrencies.

Jay Tulsani
jtulsani@bdo.ca

Brian Morcombe
bmorcombe@bdo.ca

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