1.    Context

Within the cryptoasset industry, the majority of cryptoasset networks that use a publicly distributed ledger will employ human services to verify transactions and add them to the ledger. When a person verify the transactions and enter them into the ledger, they may receive compensation for their work. A block subsidy from the network and one or more transaction fees, both in the form of cryptoassets, are typically included in the compensation given. In these situations, the software or the cryptoasset network typically has no owner and no specific person is in charge of running it. The GST/HST's application to these (and other related) activities with regard to cryptoassets is covered in Section 188.2 of the ETA.

2.    Mining activities with respect to cryptoassets

2.1.        Definition of cryptoasset

"Property (other than prescribed property) that is a digital representation of value and that only exists at a digital address of a publicly distributed ledger" is the definition of a cryptoasset given in subsection 188.2(1). This includes assets that, according to Section 123(1), are virtual payment instruments. Generally speaking, a virtual payment instrument is property that takes the form of a digital representation of value, serves as a medium of exchange, and is only available at a digital address of a publicly distributed ledger. As of December 31, 2024, there is currently no prescribed property for the purpose of the cryptoasset definition.

2.2.        Definition of mining activity

Subsection 188.2(1) defines a mining activity as an activity of

1. Verifying transactions pertaining to a cryptoasset and adding them to a publicly distributed ledger where the cryptoasset is located at a digital address;
2. Keeping up with, and granting access to, a publicly distributed ledger where a cryptoasset is located at a digital address; or
3. Permitting the use of computer resources for the conduct of operations related to a cryptoasset that are outlined in paragraphs (a) or (b) above.

Verifying transactions pertaining to a cryptoasset and adding them to the publicly accessible ledger are included in the definition under paragraph (a). Any of the many techniques used by cryptoasset networks, such as those commonly known as proof-of-work or proof-of-stake protocols, can be used to validate transactions. Furthermore, the definition in paragraph (c) would cover, for instance, a person who permits another person to use their equipment in order to validate transactions and add them to the publicly accessible ledger. Both persons would be engaged in mining operations under this scenario.

3.    Section 188.2: Mining activities with respect to cryptoassets

3.1.        GST/HST obligations for a person performing mining activities

3.1.1.     Collection of GST/HST

When a person receives a mining payment for performing mining activities, the provision of the mining activity is considered not to be a supply for GST/HST purposes under subsection 188.2(4), subject to the exclusion in subsection 188.2(5). Therefore, it is not necessary for the person to charge GST or HST for the provision of the mining activity. This pertains to any compensation received after February 4, 2022, as a result of engaging in mining activities.

According to subsection 188.2(1), a mining payment for a mining activity is any money, property, or service that is received or produced as a result of the mining activity being carried out and that takes the form of a fee, reward, or other type of payment. Block subsidies and network transaction fees received by the person conducting the mining activity would be considered mining payments. Other forms of compensation obtained from third parties for carrying out a mining activity would also be considered mining payments.

3.1.2.     Eligibility for Input Tax Credit (ITCs)

If a person purchases, imports, or brings into a participating province property or a service for consumption, use, or supply while performing mining activities, they are considered to have purchased, imported, or brought into the participating province, as applicable, for consumption, use, or supply in a manner other than in the course of their commercial activities, subject to the exclusion in subsection 188.2(5). This is outlined in section 188.2(2). Therefore, after February 4, 2022, the person cannot claim input tax credits (ITCs) for such property or services that they have purchased, imported, or brought into a participating province. In situations where acquisitions are used in mining activities but no compensation is earned, ineligibility to ITCs is applicable even if the person does not receive any compensation as a result of engaging in mining activities.

Furthermore, in accordance with subsection 188.2(3), if someone uses, consumes, or supplies a service or property at any point while engaging in mining activities, that use, consumption, or supply is considered to be different from that person's commercial activities. This is applicable if the property or service is consumed, used, or supplied after February 4, 2022.

3.1.3.     Division IV Self-assessment

Considering that the exclusion from the definition of imported taxable supply for property or services acquired for consumption, use, or supply exclusively in the course of commercial activities does not typically apply to property or services acquired for consumption, use, or supply in whole or in part in mining activities, the person must also take into account the requirement to self-assess tax under Division IV with regard to imported taxable supplies.

3.2.        GST/HST consequences for a person making a mining payment

3.2.1.     Collection of GST/HST

Pursuant to paragraph 188.2(4)(b), the making of a mining payment for a mining activity is not considered a supply, subject to the exclusion in subsection 188.2(5). This is applicable for mining payments made after February 4, 2022.

3.2.2.     Eligibility for ITCs

When calculating an ITC for a person who provided a mining payment, paragraph 188.2(4)(c) states that, subject to the exclusion in subsection 188.2(5), no amount should be included as GST/HST paid, or payable, by the person in respect of any property or service that was acquired, imported, or brought into a participating province for the consumption, use, or supply in the course of the person's provision of the mining payment. Any property or service purchased, imported, or brought into a participating province after February 5, 2022, is subject to paragraph 188.2(4)(c).

3.3.        Application of subsection 188.2(5)

The regulations outlined in subsections 188.2(2) to (4) are excluded under subsection 188.2(5). When a supplier performs mining work for another person, subsection 188.2(5) is applicable when:

1. The supplier knows the other person's identity,
2. The mining activity is for a mining group that includes the supplier, the other person is not a mining group operator for the mining group, and
3. When the other party is a non-resident and is not conducting business with the supplier at arm's length, any property or service that the other party receives from the supplier as a result of the mining activity is either supplied by the supplier or used or consumed by the other party while making a supply to one or more persons, each of whom

a)                is a person whose identity is known to the other person;

b)               deals at arm's length with the other person; and

c)                does not operate a mining group for a mining group that includes the other person if the mining activity is for that second mining group.

Subsection 188. 2(5) overrides the rules outlined in subsections 188. 2(2), (3), and (4). In such situations, the mining activity is governed by the standard GST/HST regulations. The following example illustrates subsection 188.2(5) overriding rule:

4.    Mining groups and operators of mining groups

Subsection 188.2(1) defines a mining group as “a group of persons that, under an agreement,

1. pool property or services for the performance of mining activities; and
2. share mining payments in respect of the mining activities among members of the group.”

A mining group operator is defined in subsection 188.2(1) in relation to a mining group as “a person that coordinates, oversees or manages the mining activities of the mining group.”

A mining group may have at least two members, the mining group operator and another person. A mining group may also be formed as a result of multiple contracts. For example, a mining group consisting of a mining group operator and five other persons may be bound by five different contracts, each of which is entered into between the mining group operator and one of the five other persons.

Moreover, multiple distinct groups of people engaged in mining operations may be coordinated by a mining group operator. Each group of people who, under a common agreement, agree to pool resources or services and distribute all or a portion of any fees, rewards, or other payments received or generated as a result of carrying out mining operations would be considered a separate mining group in these situations.

A mining group is made up of persons who have agreed to share resources or services in order to carry out mining operations collectively. Additionally, the group of people splits the mining payments related to the mining operations. Although a mining group and a mining pool are sometimes used interchangeably, a mining pool may not always be considered a mining group for the purposes of section 188.2. A person may belong to a mining pool, but if they do not receive any of the group's mining income, they are not considered a member of the mining group for the purposes of section 188.2. As a result, certain persons in a mining pool might be considered members of the mining group for the purposes of section 188.2, while other persons in the mining pool might not be.

When a person shares in the group's mining activities' risk of success, they also share in the mining payments. Since this is a factual issue, each case must be considered separately. The general rule is that a person is regarded to share in the mining payments if they receive a direct share of the actual mining payment that is dependent on the actual mining payment earned by the operator or the pool. The CRA ruling is determined on a case-by-case basis. Nonetheless, an person may not be deemed to receive a portion of the mining payments if their compensation is calculated using an estimate of prospective mining payments and is not modified to reflect the actual mining payments. Whether or not the operator charges fees to persons for the management or administration of the mining endeavors is another consideration by the CRA when deciding whether or not members of a mining group share mining payments.

When making these determinations, the following types of mining arrangements are utilized to determine that a person and a mining pool operator are not part of the same mining group as defined in section 188.2:

●       The person receives compensation from the mining pool operator for their provision of computing resources, with the payment determined by the anticipated value of the number of blocks validated, irrespective of whether this activity results in an actual block subsidy or transaction fee. The mining pool operator assumes all associated risks concerning the person's contributions to the pool and benefits from the actual number of blocks successfully validated, as well as the transaction fees accrued. The payment received by the person is not subject to adjustment based on the actual block subsidy obtained by the mining pool operator. The person does not bear any risk related to the mining operation itself, apart from the typical risks that a supplier might face in their business, such as market risks, equipment risks, or foreign exchange risks.

●       The person receives compensation from the mining pool operator for their provision of computing resources, with the payment determined by the anticipated value of the number of blocks validated, irrespective of whether this activity results in an actual block subsidy or transaction fee. The mining pool operator assumes all associated risks related to the person's contributions to the pool and benefits from the actual number of blocks successfully validated, as well as the transaction fees accrued. The payment to the person is not subject to adjustment based on the actual block subsidy or transaction fees obtained by the mining pool operator. The person does not bear any risk concerning the mining operation itself, apart from the typical risks that a supplier might face in their business, such as market risks, equipment risks, or foreign exchange risks.

In the two aforementioned arrangements, the person assumes no risk regarding the successful acquisition of the block subsidy and transaction fees. In those instances where the agreements between the person and the pool operator, along with any relevant terms and conditions, affirm that the arrangements align with the description provided in the previous paragraph, this constitutes a supply made by the person through the provision of computing resources to the pool operator. Consequently, the person does not participate in the mining payments as defined by the mining group in subsection 188.2(1). This supply is governed by the general GST/HST regulations under the ETA. Additionally, in situations where the pool operator deducts any amounts from the payment to the person, the consideration for the person's supply to the pool operator would be the total payment minus the deducted amount, unless the arrangements between the parties explicitly indicate that the deduction pertains to a supply made by the pool operator to the person.

5.    Amendment to the definition of commercial service

The definition of commercial service in subsection 123(1) has been amended, effective February 5, 2022, to exclude services related to goods acquired for consumption, use, or supply in connection with mining activities, as defined in subsection 188.2(1), within Canada.

The consequences for services related to goods provided by a GST/HST registrant to an unregistered non-resident for consumption, use, or supply in connection with mining activities in Canada are as follows:

●       Such services will not be considered as provided outside Canada under the drop-shipment provisions outlined in section 179.

●       The GST/HST registrant is precluded from claiming an ITC as per section 180 rules on the goods if the non-resident has already paid tax under Division III upon importing the goods or in relation to a deemed supply of the property made by the registrant under subsection 179(1).

●       The GST/HST registrant is also precluded from claiming an ITC under section 169 for any tax paid on the importation of goods belonging to the non-resident.

Example 4 Statement of facts: ●     USCo, a cryptocurrency mining entity that is neither a resident of Canada nor registered for GST/HST purposes, imports a computer from the United States into Canada, resulting in the physical transfer of the computer to CanCo, a registrant for GST/HST. USCo incurs tax liabilities upon the importation of the computer. ●     During its time in Canada, the computer is utilized by USCo for mining activities as defined in subsection 188.2(1). ●     USCo engages CanCo to provide hosting services related to the computer, which may include installation, maintenance, and technical support. After the completion of its mining operations in Canada, the computer is returned to the United States. Ruling: The hosting services were obtained by USCo for the purpose of consumption, use, or supply in relation to its mining activities conducted in Canada. As a result, these services fall outside the definition of commercial service as outlined in subsection 123(1). As a consequence, CanCo is unable to claim an input tax credit under section 180 for the importation of the computer, nor can it apply the section 179 drop-shipment provisions to deem its supply of hosting services to USCo as being made outside of Canada.

6.    Mining activities in respect of cryptoassets prior to February 5, 2022

The GST/HST regulations applicable to mining activities carried out prior to February 5, 2022, are determined by the GST/HST provisions of the ETA that were in force before that date. Mining activities related to cryptoassets can be undertaken in two distinct manners:

●       persons may either engage in mining independently (solo miners), or

●       collaborate with others in their mining efforts.

6.1.        Solo miners

In a publicly accessible ledger, such as a public blockchain, any person can join and engage in the network, which functions through the collaborative efforts of all participants involved. Generally, there is no formal agreement that establishes a legally binding obligation for any person to distribute blockchain rewards or transaction fees, nor is there a legally enforceable right for those who engage in mining activities—validating transactions and incorporating them into the publicly distributed ledger—to receive such payments. Consequently, no specific person bears the responsibility to compensate another for contributions made to the cryptoasset network, and there is no designated recipient of the services rendered. As a result, there is no identifiable recipient, as defined in the ETA, for the mining activities provided to the cryptoasset network.

6.1.1.     Collection of tax

Before February 5, 2022, when a person engages in mining activities to validate transactions and add them to a publicly distributed ledger as a solo miner involved in commercial operations, the provision of these activities would be classified as a taxable supply for GST/HST purposes. However, due to the absence of a clearly identifiable recipient for this taxable supply and the lack of a specific liability for payment associated with it, there is generally no consideration for such a supply. Consequently, there is no requirement to collect and remit the GST/HST. Therefore, no GST/HST applies to the taxable supply made by a solo miner who conducts mining activities and receives a mining payment prior to February 5, 2022.

6.1.2.     Eligibility for ITCs where virtual payment instruments are applicable to mining activities

Any person engaged in making taxable supplies in Canada may qualify to claim input tax credits on their inputs, provided they satisfy specific criteria. For instance, to be eligible for an ITC, a person must typically be involved in making taxable supplies for consideration as part of their commercial activities.

Subsection 141.01(4) may be applicable in certain situations where acquisitions pertain to making taxable supplies without consideration, and it can be reasonably inferred that the supply made without consideration is intended to facilitate, advance, or promote the activities of another person. In such instances, the entitlement to ITCs is determined by the commercial activities of that other endeavor. According to the provisions of subsections 141.01(2) and (4), ITCs may be accessible, subject to the stipulations outlined in section 169, to the extent that a person engages in mining activities related to validating transactions and incorporating them into a publicly distributed ledger and:

●       The person obtained, imported, or introduced property or services into a participating province prior to May 18, 2019.

●       This property or these services were utilized, consumed, or provided by the person while validating transactions and incorporating them into a publicly accessible ledger.

●       The rewards and transaction fees that the person would receive upon successful completion of those mining activities were cryptoassets that conformed to the definition of a virtual payment instrument as outlined in subsection 123(1).

●       At the time of acquiring, importing, or bringing the property or service into a participating province, the person intended to obtain the virtual payment instruments through their mining activities for the purpose of supplying those instruments as part of a commercial endeavor.

Any capital property owned by the person as of May 18, 2019, falls under the change-in-use provisions outlined in the ETA. This applies particularly when supplies made after May 17, 2019, of virtual payment instruments obtained through mining activities are not considered supplies made in the context of the person's commercial operations.

Furthermore, if, after May 17, 2019, the person acquires, imports, or brings into a participating province any property or services that are utilized in the process of validating transactions and incorporating them into a publicly distributed ledger, the person would not be entitled to claim ITCs for that property or those services if the supply of a virtual payment instrument obtained from this mining activity was not a commercial activity.

6.1.3.     ITCs under other scenarios

In instances where an person acquires, imports, or brings property or services into a participating province for consumption, use, or supply during the process of validating transactions and incorporating them into a publicly distributed ledger, input tax credits (ITCs) may be accessible, contingent upon the stipulations outlined in section 169, provided that:

●       the rewards and transaction fees payable to the person upon successful completion are cryptoassets that do not conform to the definition of a virtual payment instrument; and

●       at the time of acquiring, importing or bringing into a participating province the property or service, any supply of the cryptoasset that would be earned upon success would be a commercial activity.

6.2.        Mining with others

In situations where a person engages in mining activities with others prior to February 5, 2022, the specific nature of the arrangements will dictate the application of GST/HST. This necessitates a thorough examination of the arrangements on a person basis.

In certain instances, participants may combine their resources and share both the risks and rewards associated with the mining venture. If a person is involved in mining with others through a mining pool or group, the arrangements may exhibit characteristics akin to a joint venture. Alternatively, a person may operate independently while leveraging the resources of a mining group via the group's operator to access the network and enhance the likelihood of success in their mining efforts. In such arrangements, the person typically provides a supply of their mining activities, which includes validating transactions and adding them to a publicly distributed ledger for the cryptoasset network, rather than supplying the mining group operator. Each participant in the group is regarded as conducting these mining activities similarly to a solo miner. Consequently, the GST/HST treatment applicable to solo miners would also extend to these scenarios. The supply would not incur GST/HST, as there is no recipient for the mining activity supply, and the person would generally be eligible to claim ITCs only to the extent previously outlined for solo miners.

There may be alternative arrangements in which a supplier engages in mining activities under a framework where the supplier provides services to a person, who then utilizes those mining activities to supply either another person or the cryptoasset network. In such scenarios, the person does not partake in the risks and rewards associated with the mining operation. Typically, this results in a supply of mining activities directed towards a specific recipient, which would fall under the general GST/HST regulations as outlined in the ETA. Consequently, the supply of mining activities is generally considered a taxable supply, allowing the person to potentially claim Input Tax Credits (ITCs) for property and services that are acquired, imported, or brought into a participating province and are utilized in the mining process.

When mining is conducted collaboratively, it is essential to examine the agreements between the involved parties to ascertain the appropriate GST/HST treatment. Key factors to evaluate include the nature of the payment arrangements, the presence of fees paid to an operator for managing or administering the pool, the level of control the operator exercises over the use of the person's contributions, and the extent to which the supplier shares the risks associated with the mining operation with others.

In determining GST/HST treatment, the following types of arrangements for mining would suggest that a supply has been made by the person to the mining pool operator:

●       The person receives compensation from the mining pool operator for providing computing resources, with the payment calculated based on the anticipated value of the number of blocks validated, irrespective of whether this activity results in an actual block subsidy or transaction fee. The mining pool operator assumes all risks associated with the person's contribution to the pool and benefits from the actual number of blocks successfully validated, as well as the transaction fees generated. There is no modification of the payment received by the person based on the actual block subsidy obtained by the mining pool operator. The person does not bear any risk related to the mining operation itself, apart from the typical risks encountered by a supplier in their business, such as market risks, equipment risks, or foreign exchange risks.

●       The person receives compensation from the mining pool operator for their provision of computing resources, with the payment determined by the anticipated value of the number of blocks validated, irrespective of whether this activity results in an actual block subsidy or transaction fee. The mining pool operator assumes all associated risks related to the person's contributions to the pool and benefits from the actual number of blocks successfully validated, as well as the transaction fees generated. The payment received by the person is not subject to adjustment based on the actual block subsidy or transaction fees obtained by the mining pool operator. The person does not bear any risk concerning the mining operation itself, apart from the typical risks that a supplier might face in their business, such as market risks, equipment risks, or foreign exchange risks.

In the above examined agreements, the person assumes no risk regarding the successful acquisition of the block subsidy and transaction fees. In instances where the agreements between the person and the pool operator, along with any relevant terms and conditions, affirm that the arrangements align with the description provided above, this constitutes a supply made by the person through the provision of computing resources to the pool operator. Such a supply is governed by the general GST/HST regulations under the ETA. Additionally, in these situations, if the pool operator deducts any amounts from the payment to the person, the consideration for the person's supply to the pool operator would be the total payment minus the deducted amount, unless there is a clear indication within the agreements between the parties that the deduction pertains to a supply made by the pool operator to the person.