GST/HST and Crypto Currency Rules
If you use cryptocurrencies to pay for goods and services, then that is considered a barter transaction. What that means, is that the value received for a sale of goods or services in exchange for crypto assets should be the fair market value of that crypto asset.
Therefore for GST/HST purposes, if a taxable product or service is sold for cryptocurrency as payments, the value of the cryptocurrency on which the GST/HST is to be assessed is the fair market value of the cryptocurrency at the time of transaction.
GST/HST Rules – Crypto Currency
Generally, GST/HST is levied such that, while the recipient of a taxable supply is liable to pay the tax, the party that makes a taxable supply must collect the tax and remit it to the CRA. While its administrative policy is to pursue the supplier, the CRA has the right to assess the recipient directly.
Presently, and until further clarification of the law, the CRA’s general position regarding the GST/HST treatment of the use of cyptoassets/currency as payment is that vendors accepting crypto for payment are at minimal risk, but that purchasers paying with crypto are at risk of incurring potential GST/HST liability (CRA documents no. 2013-0514707I7, December 23, 2013).
Crypto Currency and Financial Instruments
So, if a taxpayer “supplies” crypto by using it as a method of payment, it is still uncertain as to whether that taxpayer be required to collect and remit GST/HST. The best argument for the position that the supplying taxpayer will be not be required to collect and remit is that crypto is “money” for the purposes of the Excise Tax Act (“ETA”). This means that, if supplies of crypto are considered supplies of money, they are therefore supplies of financial services, which are exempt from GST/HST. Furthermore, the ETA definition of “money” is broad and not limited to financial instruments issued by governments, which offers even greater potential for the definition of crypto for GST/HST purposes to fall within this scope.
A secondary argument for the position that the supplying taxpayer will be not be required to collect and remit is that crypto is that crypto suppliers are usually small suppliers (i.e., less than $30,000 of supplies to both crypto and normal goods and services). Crypto suppliers who are considered small suppliers would therefore not be engaged in a commercial activity.
Lastly, if the recipient of the crypto is a non-resident, then, generally, GST/HST would not be required to be collected and remitted.
Crypto Currency, GST/HST and Canadian Tax Policy
In essence, Canada is taking a reactionary approach as they are seeing individuals and particularly institutions opening up more to the idea of transacting with cryptocurrencies. Naturally, the increase in flow of money (through crypto) creates a tremendous amount of opportunities for tax avoidance and evasion.
The CRA issued a statement in June 2019 which solidifies their stance on crypto regulation. The government formally expressed its commitment to ensuring cryptocurrency is taxed in accordance with the law.
“Canadians should know that the Canada Revenue Agency is very active in pursuing cases of non-compliance, in order to make sure that the tax system is fair for everyone.”
If you have questions about the whether GST/HST applies to your crypto currency transactions, call us today! We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.