The Surrey Board of Trade has composed a federal government policy requesting action to address the lack of support for cryptocurrency miners, a recent way to conduct financial transactions for businesses. The Surrey Board of Trade will be seeking the support from 450 chambers of commerce/boards of trade across Canada at the Canadian Chamber of Commerce Conference, September 21-23, 2019 in Saint John, New Brunswick.
Cryptocurrency is a digital currency used to buy and sell commodities throughout the world. It is a multi-billion dollar industry that operates worldwide. Cryptocurrency differs from government-issued legal tender in two ways:
1. It is encrypted – the coins and transactions are verified by a type of cryptography; and,
2. It is decentralized – there is no middle man (or bank) involved.
The Federal Government is amending the Excise Tax Act to include ‘virtual instruments’, cryptocurrency buyers and sellers as financial instruments. The Federal Government should ensure that policy is in place that clearly defines that cryptocurrency miners operate as taxable ventures at a zero-rated level to encourage investment in the industry in Canada. Without certainty miners may move from Canada due to increased regulatory burden.
The Surrey Board of Trade is calling on the Federal Government to:
- Clarify whether cryptocurrency miners must collect HST/GST on their revenues by creating a system on how to report who is receiving their services by legislating that they are taxable at a zero-rated level; and,
- Ensure that miners are still eligible for input tax credits on costs for computers, electricity, and other necessary equipment and services to mine.
New rules no longer allow for cryptocurrency miners to claim tax on their equipment, diminishing the incentive to operate as a cryptocurrency miner in Canada.
“The rest of the world is passing Canada by,” stated Anita Huberman. “Without the ability to reclaim taxes on equipment used in the operation of their businesses, cryptocurrency miners will move their operations to other countries that can provide the necessary incentives to run this new innovative way to conduct transactions.”
Cryptocurrency is a viable currency system separate from banks and governments, which runs on a secure and anonymous data ledger known as blockchain that publicly records all transactions. Through the blockchain, many different people hold on to identical copies of the ledger on their computers – known as nodes. Each time a transaction occurs, the nodes independently update and verify it from chunks of data called blocks. Those blocks are verified by miners.
Miners confirm all transactions that take place when cryptocurrency is exchanged. They set a computer program to solve a mathematical puzzle unique to each block. The solution is proof that the transaction is verified. The verification is then sent to each node along the chain of transactions. This is how cryptocurrency is tracked and confirmed so that no coins are deposited twice.
Financial services are not taxable. With the new legislation those who are brokering, selling, or trading in virtual currencies may become listed as a financial institution. Miners are not explicitly stated to be included in the definition of a “virtual payment instrument”. If they are, the miner must follow the rules that apply to financial institutions, which will result in changes to input tax credit ineligibility, additional apportionment and annual reporting requirements, among other changes.
If a miner is considered a “virtual payment instrument” they would be unable to disclose their customer base and determine whether HST or GST should be charged. This adds to the uncertainty around mining in Canada, which would then result in lost innovation and investment in the cryptocurrency mining industry.
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For further details, please contact:
Anita Huberman, CEO