See “Money transmission laws and anti-money laundering requirements”, above. ... (e.g. Similarly, investment fund managers are required to be registered. The threshold question is whether the initial acquisition of a cryptocurrency is a taxable event that potentially triggers a Canadian income tax liability to the person acquiring the cryptocurrency. The PPF incorporates requirements relevant for dealers and is structured to account for the different marketplace and dealer functions that Platforms may perform. Full legal advice should be taken from a qualified professional when dealing with specific situations. This acts a little like a legislative “basket clause”. In Canada, governmental regulators appear to have adopted a largely “hands-off” approach for the time being. That being said, where the elements of the Investment Contract Test are not strictly satisfied, securities regulators in Canada are mandated to consider the policy objectives and the purpose of the securities legislation (namely, the protection of the investing public by requiring full and fair disclosure) in making a final determination. The requirements for registration, and exemptions from registration, are set out in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations (“NI 31-103”). Canada was the first country to approve regulation of cryptocurrencies in the context of anti-money laundering (“AML”). Order the print edition of Blockchain & Cryptocurrency Regulation 2021 or read free online, Order the Canada chapter of Blockchain & Cryptocurrency Regulation 2021 in PDF format or read free online, View Basket On December 11, 2017, IIROC, the organisation that governs persons and companies registered under securities law, issued a notice to its members regarding margin requirements for cryptocurrency futures contracts that trade on commodity futures exchanges. ComplyAdvantage is powered by Amazon Web Services, A Guide to KYC Solution Providers â Celent 2020. Written by Simon Grant, Kwang Lim and Matthew Peters Simon Grant, Kwang Lim and Matthew Peters are the authors of the Canada chapter in Global Legal Insights' Blockchain & Cryptocurrency Regulation 2020.They provide a detailed look at the regulatory landscape in Canada⦠However, the acquisition will establish the holder’s “cost” in the cryptocurrency for Canadian tax purposes, which is relevant in the determination of the tax consequences that will be realised later when the cryptocurrency is eventually sold or otherwise exchanged. Generally, securities sold pursuant to a prospectus exemption are subject to resale restrictions and, particularly in the case of a non-reporting issuer (i.e., an issuer that is not a public entity and is not subject to ongoing securities compliance and disclosure obligations), may never be freely tradeable. The provider must remit to the Canadian tax authorities in Canadian currency (not cryptocurrency), meaning that the provider will be forced to either remit an equivalent amount of cash from other sources, or sell a sufficient amount of the cryptocurrency to generate the cash to satisfy the remittance. This is based on the concept that the mining activities are a service and that the mined cryptocurrency is received as compensation for those services. In February 2020, the Virtual Currency Travel Rule came into effect in Canada, requiring all financial institutions and money services businesses (MSB) to keep a record of all cross-border cryptocurrency transactions (along with all electronic fund transfers). This change also effectively means that crypto asset deals, and persons that undertake cross-border transactions, are subject to the enhanced due diligence requirements set out in PCMLTFA. Cryptocurrencies can obviously be acquired by several alternative means, including commercial business transactions and other forms of “barter” exchanges. This material is intended to give an indication of legal issues upon which you may need advice. In August 2017, the Canadian Securities Administrators (CSA) issued a notice on the applicability of existing securities laws to cryptocurrencies and, in January 2018, the head of Canadaâs Central Bank characterized them âtechnicallyâ as securities. If a Platform trades in crypto assets that attach certain properties such as voting rights or rights to receive dividends, those assets will likely trigger securities regulation as they are already clearly defined as securities.8 Additionally, if a Platform retains a purchaser’s crypto assets internally, such as through a virtual wallet, instead of making immediate delivery of an asset, those assets will likely be treated as securities by the CSA.9 SN 21-327 also notes the importance of examining the typical commercial practice in determining whether a crypto asset is a security. Bermuda blockchain and cryptocurrency regulation 2020, second edition. Exemptions from the prospectus requirement are principally set out in National Instrument 45-106 Prospectus Exemptions (“NI 45-106”). If that were the case, compliance obligations and costs associated with routine cryptocurrency transactions could become exceedingly complex and beyond the reasonable abilities of many holders/users of cryptocurrency. SN 21-327 addresses the flexible nature of crypto assets and further adopts the substance-over-form test in determining whether a crypto asset that trades on a Platform is considered a security. Canada brought entities dealing in virtual currencies under the, Proceeds of Crime (Money Laundering) and Terrorist Financing Act, as early as 2014, while in 2017, the British Columbia Securities Commission registered the first cryptocurrency-only investment fund. This is a material distinction for tax purposes. Although it is far from settled, the CRA currently takes the view that cryptocurrencies are generally commodities rather than currency, and that trading in cryptocurrencies will usually (with some possible exceptions) be regarded as being on capital account. The Canadian financial regulator FINTRAC has published a report that highlights regulatory changes it will implement in 2020/2021. The answer depends on the manner, purpose and circumstances in which the cryptocurrency is acquired. Cryptocurrencies are not treated as legal tender in Canada. A prospectus is a comprehensive disclosure document which seeks to satisfy the public protection aim of securities laws by disclosing information about the securities and the issuer to prospective investors. Resale restrictions rules are set out in National Instrument 45-102 Resale of Securities (“NI 45-102”). Even if an ICO cannot be said to fall within the specific definition of a “security” provided by legislation, as discussed above, it may nonetheless be found to involve the sale of securities if it otherwise triggers the policy objectives and purposes of securities legislation. Exchanges in Canada are essentially regulated in the same way as money services businesses and are subject to the same due diligence, record keeping, verification, and reporting obligations as MSBâs dealing with fiat currencies. When you are dealing in cryptocurrencies, it is important to know about the laws and regulations that govern their use. The delay is a result of the general elections expected in the country in 2019. Another sales tax issue associated with transactions involving cryptocurrencies is whether the person disposing of the cryptocurrency (e.g., the person using the cryptocurrency to purchase goods or services or trading one cryptocurrency for another) is required to charge and collect sales tax on the value of the cryptocurrency. In March 2019, the CSA and Investment Industry Regulatory Organization of Canada (“IIROC”) issued joint Consultation Paper 21-402 Proposed Framework for Crypto-Asset Trading Platforms (“CP 21-402”). This means that as of June 1, 2020, foreign Learn how our solution helps Crypto companies comply with AML regulations. It is likely that both the government and crypto exchanges will need time to evaluate how these legislative changes have affected the crypto landscape before considering additional legislation. Canada has imposed a sweeping regulation that will require cryptocurrency exchanges to be in compliance with a local watchdog regulator by June 2020. The purpose of CP 21-402 was to seek feedback to establish tailored regulatory requirements for platforms that facilitate the buying and selling or transferring of crypto assets (“Platforms”) to address the novel features and risks of Platforms that were not addressed by the existing regulatory framework. However, this doesnât mean that their usage is illegal. Resale restrictions will be of particular concern if coins or tokens begin trading on cryptocurrency exchanges or otherwise in the secondary market following their initial sale. Again, this issue is fact-dependent, should be reviewed on a case-by-case basis, and is described in greater detail below. However, as discussed above, dealers in crypto assets that qualify as MSBs are now subject to the record-keeping requirements of the Virtual Currency Travel Rule under the PCMLTFA, which requires these dealers to keep a record of the transfer with the personal information of both parties to the transaction, as well as being required to take reasonable measures to ensure that any transfer received includes such information. In terms of estate planning, given the anonymous, decentralised nature of cryptocurrencies held on a blockchain, it will be imperative to include instructions on where to locate a copy of the private key related to the cryptocurrency. The Sandbox allows companies engaged in cryptocurrency matters to register or seek exemptive relief (generally on a time-limited basis) in order to test products and services in the Canadian market. Note that the CRA has generally been silent on its views concerning cryptocurrencies other than payment tokens (i.e., Bitcoin). CP 21-402 confirmed the guidance set forth in SN 46-307 and SN 46-308, and states that a Platform on which crypto assets that are securities and/or derivatives are traded would be subject to securities and/or derivatives regulatory requirements. Such a transaction will also be considered a barter transaction involving the exchange of one commodity for another commodity. A person will realise taxable income (or loss) on an eventual disposition of a cryptocurrency. The government of Canada has delayed the update on crypto regulations from this fall until 2020. registered charities in Canada). However, the fundamental “building block” tax concepts discussed in this chapter likely form the basis of the analysis underpinning certain of the discrete transactions and legal relationships created in many current ICO structures. For federal GST purposes, the Canadian tax authorities require that the provider charge, collect and remit GST based on the value of the cryptocurrency at the time of the sale. Discover our solutions for the cryptocurrency industry to see how we can help your organization comply with regulations. The Canadian government has postponed the release of its final regulations for cryptocurrency and blockchain companies. See Canadian Securities Administrators, Staff Notice 21-327 – Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets at, Certain provincial tax authorities, namely Revenu Québec, have also published their own administrative positions on certain narrow issues (. 11/26/2020 Coinsquare, a Canadian cryptocurrency trading platform, has announced the appointment of Nicholas Thadaney and Wendy Rudd to its board of directors. These changes will support the combating of money laundering and terrorism funding in Canada, in accordance with global regulations and also extend to virtual currency (cryptocurrencies). Legal, required to register with FinTRAC after June 1, 2020, Cryptocurrencies are not legal tender in Canada but can be used to buy goods and services online or in stores that accept them. (0), Blockchain & Cryptocurrency Regulation 2021. with an intention or expectation of profit; in a common enterprise (being an enterprise “in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment, or of third parties”); and. In February 2020, the Virtual Currency Travel Rule came into effect in Canada, requiring all financial institutions and money services businesses (MSB) to keep a record of all cross-border cryptocurrency transactions (along with all electronic fund transfers). However, a deceased is deemed to dispose of their property on death for its fair market value, which can result in income taxes being payable by the estate. In August 2017, the CSA issued Staff Notice 46-307 Cryptocurrency Offerings (“SN 46-307”). Issuers of a cryptocurrency that is found to be a security will also need to ensure that they comply with any applicable registration requirements, including dealer registration, or that the conditions for an exemption from registration are fully satisfied. In January 2020, the CSA issued Staff Notice 21-327 Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets (âSN 21-327â). In this respect, a VPI generally includes payment tokens such as Bitcoin, but expressly excludes tokens that operate in a manner similar to gift cards or that have functionality on a gaming or affinity/rewards programme platform. As of 2019, a large number of countries have set up legal regulations on cryptocurrencies. The authors thank Esther Peterson and Benjamin Sissons for their assistance with this chapter. However, Hydro-Québec (a Québec Crown entity) recently announced the implementation of restrictions on energy allocation to 300 megawatts for users involved in cryptocurrency mining, the effect of which may be to discourage such activities in that province. In this respect, if the disposition of a cryptocurrency is a barter transaction akin to a disposition of a commodity, should such disposition be treated as a taxable supply of the cryptocurrency much in the same way as a commodity? Due to the ever-evolving landscape of the industry, regulators have taken it upon themselves to clarify the regulatory framework, to better support businesses seeking to offer innovative products, services and applications, and to protect Canadian investors. Some countries like Russia and China continue to flip-flop between being for or against this new asset class. Canada imposes a federal sales tax (the goods and services tax, or “GST”) on the supply of many goods and services, subject to detailed exemptions. The National Research Council is testing blockchain to publish research grant and funding information in real time.1 The Canada Border Services Agency is participating in a pilot project designed to improve data quality and facilitate the movement of goods with blockchain-based technology.2, The Bank of Canada is actively conducting research to assess the effects of introducing a central bank digital currency. This report surveys the legal and policy landscape surrounding The Bank of Canada has also been involved with “Project Jasper”, a research initiative with Payments Canada and TMX Group that was formed to experiment with the use of distributed ledger technology in the context of payments. The government of Canada has delayed the update on crypto regulations from this fall until 2020. This test, the “Investment Contract Test”, requires that in order for an instrument to be classified as a security, each of the following four elements must be satisfied: The application of the Investment Contract Test has been the subject of judicial and regulatory consideration that is beyond the scope of this overview. Regulation of Cryptocurrency in Canada. Canada has been fairly proactive in its treatment of digital, virtual, and crypto currencies: it was the first country to approve AML-related regulation of cryptocurrency service providers, primarily regulating them under provincial securities laws as money service businesses (MSBs) in order to protect the public.
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