Cryptocurrencies are not considered a legal tender in Canada; as such legal tenders can only be in the form of banknotes and coins issued by the Bank of Canada as per the Currency Act, 1985. However, the Government of Canada permits the usage of cryptocurrencies in the form of digital currencies to buy goods and services on the internet and in stores that accept such digital currencies or to buy and sell digital currencies in open exchanges.
- The Canadian tax laws and rules are applicable to the transactions of Digital Currency. The Canada Revenue Agency(CRA) characterizes cryptocurrency as a commodity and not as a currency; hence, its usage to pay for goods and services is treated as a barter transaction.
- Payments: Digital currencies are subject to the Income Tax Act, thus requiring the goods purchased using digital currency to be included in the seller’s income for tax purposes. The CRA has also ensured that GST/HST (Goods and Service tax/ Harmonised sales tax) to be applied to the fair market value of any goods or services bought using digital currency.
- Trade: The Financial Consumer Agency requires us to report any gains or losses incurred from selling or buying digital currencies which can be taxable in the form of income or capital. According to the lawyers from law firm Gowling WLG, ‘where a taxpayer does not engage in the business of trading in cryptocurrency but acquires such property for long term growth, any gain or loss generated from its disposition should be treated as on account of capital. However, where a taxpayer engages in the business of trading or investing in cryptocurrency, any gains or losses therefrom should be treated as on account of income’.
- Mining: Mining of cryptocurrency in a commercial manner, requires the income from such business to be included in the taxpayer’s income for the year. However, mining as a personal hobby is considered to be non-taxable.
2. Anti-Money Laundering Regime
- The Governor General of Canada gave his royal assent to Bill C-31 in 2014, which amended Canada’s Proceeds of Crime(Money Laundering) and Terrorist Financing Act.
- The law considers virtual currencies, including Bitcoin as “money service businesses” for the purpose of anti-money laundering laws, the result of which requires the companies dealing in virtual currencies to register with FINTRAC (Financial Transactions and Report Analysis Centre).
- The law also requires to put into effect compliance programs, keep and retain prescribed records, report suspicious or terrorist related property transactions and determine if any of their customers are politically exposed persons.
- This law is also applicable to virtual currency exchanges operating outside Canada that direct their services to persons or entities in Canada.
- The new amendment prohibits banks from maintaining or opening an account or a correspondent banking relationship with companies dealing in virtual currencies unless they’re registered with FINTRAC.
3. Securities Law
- The Canadian Securities Administrators (CSA) published a Staff Notice 46-307 which outlines that Securities law requirements may be applicable to initial coin offerings(ICOs), initial token offering(ITOs), cryptocurrency investment funds and the cryptocurrency exchanges trading these products.
- On February 1st, the Ontario Securities Commission had approved the country’s first blockchain fund- Blockchain Technologies ETF.