Canada’s crypto industry under threat because of new tax rules
Canadian tax authorities’ approach to crypto-assets might discourage the country’s citizens from using digital assets, as things like double taxation remain an issue. Canada was quick to introduce crypto taxes in 2013 but the regulations still remain confusing. Existing proposals would classify crypto transactions as barter deals, potentially leading to double taxation and hampering adoption.
While the U.S. is still struggling to decide how to regulate cryptocurrency, Canada, is attempting to decide how to enact new crypto taxes. However, the country’s CPAs are concerned that these tax rules might scare away future entrepreneurs.
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The Canadian crypto industry
The crypto and blockchain industries have seen some success in Canada particularly in 2017 and 2018, when the adoption rate surged by 25%. Meanwhile, authorities have been trying to find a way to regulate and tax the industry. The Canadian Tax Agency (CRA) introduced taxes six years ago and recently conducted audits to identify potential tax evaders.
As the crypto industry develops, so the do Canadian tax rules, the government is starting to address the tax problem. Recently, Finance Canada began classifying some cryptocurrencies as financial instruments, which is a problem by itself, as the CRA sees crypto as an investment commodity when in reality different projects have different purposes.
Put simply, the CRA does not consider crypto to be money, which means that buying goods and services using cryptocurrency is considered a barter transaction. This can lead to double taxation, which could quickly become a big problem for crypto users in Canada and discourage widespread adoption of cryptocurrency as money.
A new category for crypto: VPI
The issue is the status of crypto in determining user tax on goods and services and harmonized sales tax (GST/HST). This is why Treasury Canada believes that crypto should be classified as a new category of financial instruments. They proposed to create this category and call it virtual payment instruments (VPIs), which would exempt crypto from GST/HST.
However, this solution has its own problems, such as the need to have a license to operate a crypto enterprise and in some cases to be registered as a financial institution. This is of course very troublesome not only for business but for ordinary users as well. Meanwhile, PwC Canada has stated that financial institutions for GST/HST purposes must follow the rules established for all financial institutions currently in existence.
As for the VPI, this designation would only apply to some select cryptocurrencies, with the list of specific coins still being formulated. However, the VPI definition would ignore cryptos created for a particular goal, including stable coins, utility tokens, as well as closed blockchains, such as the Libra project.
The new draft also has a lot of holes to fill, as it doesn’t even mention crypto mining, which is a major part of the crypto world. While Canada is trying to fight against cryptocurrencies, the country’s regulators are mainly concerned about taxing users of cryptographic assets at all costs.
(Featured image by David McBee via Pexels)
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First published in NewsRu.ca, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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