The Government of Canada has enacted previously announced changes to GST/HST treatment of cryptoasset mining activities, which address the application of GST/HST to certain services provided by persons who validate and record transactions in the cryptocurrency industry.
Cryptoasset networks often require persons to validate and record transactions in publicly distributed ledgers. The work performed by these persons is referred to as mining activity, and those performing such activities are typically compensated with block subsidies and transaction fees from the networks in the form of cryptoassets. Where this is the case, there is generally no identifiable owner of the software in use or the cryptoasset network itself and no specific person responsible for operation of the network.
Section 188.2 of the Excise Tax Act (ETA) has been enacted to address the application of GST/HST to the cryptoasset mining activities and the related remuneration. In addition, the definition of a “commercial service” in subsection 123(1) of the ETA has been amended to exclude a service in respect of goods acquired for consumption, use, or supply in the course of, or in relation to, a cryptoasset mining activity.
The new provisions effectively deem cryptoasset mining activities not to be a supply for GST/HST purposes, subject to an exclusion for certain situations in which the recipient of the supply is known to the supplier (in which case the supply of a mining activity is subject to the general GST/HST rules). This outcome is necessary since the recipient of cryptoasset mining services is often unknown when the supply is made. As a result, input tax credits (ITCs) are generally not available for GST/HST payable on goods or services purchased in relation to cryptoasset mining activities or remuneration for those activities.
Furthermore, commercial services supplied by registrants to unregistered non-residents in relation to cryptoasset mining activities in Canada now fall outside the scope of the drop-shipment, ITC flow-through, and commercial service ITC provisions, preventing ITC claims and requiring the collection of tax in certain situations.
The new rules are effective as of February 5, 2022, except for ITCs claimed in relation to goods or services acquired on or before that date. Full details about the GST/HST implications of cryptoasset mining activities can be found in the latest update to Canada Revenue Agency GST/HST Notice 324.
If you have any questions or concerns about how the new GST/HST rules for cryptoasset mining activities might impact your organization, please contact the Ryan TaxDirect® line at taxdirect@ryan.com.
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