Canada allows the use of digital currencies, including cryptocurrencies. However, cryptocurrencies are not considered legal tender in Canada. Canada’s tax laws and rules, including the Income Tax Act, also apply to cryptocurrency transactions. The Canada Revenue Agency has characterized cryptocurrency as a commodity and stated that the use of cryptocurrency to pay for goods or services should be treated as a barter transaction.
On June 19, 2014, the Governor General of Canada gave his royal assent to Bill C-31, which includes amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The new law treats virtual currencies as “money service businesses” for purposes of anti-money laundering provisions. The law is not yet in force, pending issuance of subsidiary regulations.
I. Legality of Cryptocurrencies
Canada allows the use of cryptocurrencies. According to the Government of Canada webpage on digital currencies, “[y]ou can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges.” However, cryptocurrencies are not considered legal tender in Canada. According to the Financial Consumer Agency of Canada, “[o]nly the Canadian dollar is considered official currency in Canada.” The Currency Act defines “legal tender” as “bank notes issued by the Bank of Canada under the Bank of Canada Act” and “coins issued under the Royal Canadian Mint Act.”
Canada’s tax laws and rules also apply to digital currency transactions. The Canada Revenue Agency (CRA) “has characterized cryptocurrency as a commodity and not a government-issued currency. Accordingly, the use of cryptocurrency to pay for goods or services is treated as a barter transaction.”
A. Payments in Cryptocurrencies
Digital currencies are subject to the Income Tax Act (ITA). According to the Financial Consumer Agency of Canada “[g]oods purchased using digital currency must be included in the seller’s income for tax purposes.” On the issue of taxation, the Canada Revenue Agency adds that,
[w]here digital currency is used to pay for goods or services, the rules for barter transactions apply. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency. For example, paying for movies with digital currency is a barter transaction. The value of the movies purchased using digital currency must be included in the seller’s income for tax purposes. The amount to be included would be the value of the movies in Canadian dollars.
The Canada Revenue Agency has also said that “GST/HST [Goods and Services Tax/ harmonized sales tax] also applies on the fair market value of any goods or services you buy using digital currency.”
B. Trade in Cryptocurrencies
As noted, digital currency is characterized as a commodity under Canadian law. Thus, according to the Financial Consumer Agency “[w]hen you file your taxes you must report any gains or losses from selling or buying digital currencies.” Any resulting gains or losses “could be taxable income or capital for the taxpayer.” The CRA has published a bulletin to “provide information that can help in determining whether transactions are income or capital in nature.” According to lawyers from the law firm Gowling WLG,
[i]n general terms, where a taxpayer does not engage in the business of trading in cryptocurrency (i.e., the taxpayer acquires such property for a long-term growth), any gain or loss generated from the disposition of cryptocurrency should be treated as on account of capital. However, where a taxpayer engages in the business of trading or investing in cryptocurrency, gains or losses therefrom should be treated as being on account of income. The cost to the taxpayer of property received in exchange for cryptocurrency (for example, another type of cryptocurrency) should be equal to the value of the cryptocurrency given up as consideration.
The law firm also notes that “it is possible that a trader in cryptocurrency would also be required to collect GST/HST (and QST [Quebec Sales Tax]) on their supplies, but the CRA has not expressed a clear view on this point.”
C. Mining Cryptocurrencies
Mining of cryptocurrencies can be undertaken for profit (as a business) or as a personal hobby (which is nontaxable). According to Gowling WLG,
[i]f the taxpayer mines in a commercial manner, the income from that business must be included in the taxpayer’s income for the year. Such income will be determined with reference to the value of the taxpayer’s inventory at the end of the year, established pursuant to the rules in section 10 of the ITA and Part XVIII of the Regulations regarding valuing inventory.
III. Anti-Money Laundering Regime
On June 19, 2014, the Governor General of Canada gave his royal assent to Bill C-31 (An Act to Implement Certain Provisions of the Budget Tabled in Parliament on February 11, 2014, and Other Measures), which includes amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act. The law treats virtual currencies, including Bitcoin, as “money service businesses” for purposes of anti-money laundering laws. As a result of the law, companies dealing in virtual currencies are required to register with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac), put into effect compliance programs, “keep and retain prescribed records,” report suspicious or terrorist-related property transactions, and determine if any of their customers are “politically exposed persons.” The law will also apply to virtual currency exchanges operating outside of Canada “who direct services at persons or entities in Canada.” The new amendments also bar banks from opening and maintaining accounts or having a “correspondent banking relationship” with companies dealing in virtual currencies, “unless that person or entity is registered with the Centre.”
The law is regarded as the “world’s first national law on digital currencies, and certainly the world’s first treatment in law of digital currency financial transactions under national anti-money laundering law.” Though the law has received royal assent it is not yet in force, pending issuance of subsidiary regulations. Recent news reports indicate that the government may be about to issue those regulations.
IV. Securities Law
On August 24, 2017, the Canadian Securities Administrators (CSA) published CSA Staff Notice 46-307 Cryptocurrency Offerings, “which outlines how securities law requirements may apply to initial coin offerings (ICOs), initial token offerings (ITOs), cryptocurrency investment funds and the cryptocurrency exchanges trading these products.” On February 1, 2018, the Globe and Mail reported that the Ontario Securities Commission had approved the country’s first blockchain fund—Blockchain Technologies ETF.
V. Bank of Canada’s Blockchain Project
The Bank of Canada, Payments Canada, and R3, a distributed database technology company, are involved in a research initiative called Project Jasper “to understand how distributed ledger technology (DLT) could transform the wholesale payments system.” Phases 1 and 2 of the project are “focused on exploring the clearing and settlement of high-value interbank payments using DLT” and have been completed. Phase 1 of Project Jasper used the Ethereum platform as the basis for the DLT, while Phase 2 used the “custom-designed R3 Corda platform.”
In June 2017, the Bank of Canada published a report on its preliminary findings from Phase 1 of Project Jasper and partly found that “[f]or critical financial market infrastructures, such as wholesale payment systems, current versions of DLT may not provide an overall net benefit relative to current centralized systems.” On September 29, 2017, the Bank of Canada, Payments Canada, and R3 released a white paper that describes the project’s findings to date. On October 17, 2017, Payments Canada, the Bank of Canada, and TMX Group announced “a new collaboration to experiment with an integrated securities and payment settlement platform based on distributed ledger technology (DLT) as part of the third phase of the Project Jasper research initiative.”
Prepared by Tariq Ahmad
Foreign Legal Specialist
 Digital Currency, Financial Consumer Agency of Canada, https://www.canada.ca/en/financial-consumer-agency/services/payment/digital-currency.html, archived at https://perma.cc/G3PY-H8NR.
 Currency Act, R.S.C., 1985, c. C-52, http://laws-lois.justice.gc.ca/eng/acts/c-52/page-1.html, archived at https://perma.cc/4A4E-3XBH.
 Digital Currency, supra note 1; Currency Act § 8.
 Mariam Al-Shikarchy et al., Gowling WLG, Canadian Taxation of Cryptocurrency . . . So Far, Lexology (Nov. 14, 2017), https://www.lexology.com/library/detail.aspx?g=6283077e-9d32-4531-81a5-56355fa54f47.
 Digital Currency, supra note 1.
 What You Should Know about Digital Currency, Canada Revenue Agency, https://www.canada.ca/en/revenue-agency/news/newsroom/fact-sheets/fact-sheets-2015/what-you-should-know-about-digital-currency.html (last updated Mar. 17, 2015), archived at https://perma.cc/CYV2-236S.
 Digital Currency, supra note 1.
 What You Should Know about Digital Currency, supra note 10.
 CRA, Interpretation Bulletin IT-479R, Transactions in Securities, https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it479r/archived-transactions-securities.html, archived at https://perma.cc/NDV9-4BGA.
 What you Should Know about Digital Currency, supra note 10.
 Al-Shikarchy et al., supra note 7.
 Cryptocurrencies and Tax: Five Things Every Canadian Needs to Know, Wildeboer Dellelce (Dec. 12, 2017), http://www.wildlaw.ca/resource-centre/legal-updates/2017/cryptocurrencies-and-tax-five-things-every-canadian-needs-to-know/, archived at https://perma.cc/F7RC-R2D3.
 Al-Shikarchy et al., supra note 7.
 Bill C-31, An Act to Implement Certain Provisions of the Budget Tabled in Parliament on February 11, 2014, and Other Measures, Second Session, Forty-first Parliament, 62-63 Elizabeth II, 2013-2014, Statutes of Canada 2014 Ch. 20, http://www.parl.ca/DocumentViewer/en/41-2/bill/C-31/royal-assent, archived at https://perma.cc/2N7Q-E68C.
 Id.; see also Tariq Ahmad, Canada: Canada Passes Law Regulating Virtual Currencies as “Money Service Businesses” Global Legal Monitor (July 9, 2014), http://www.loc.gov/law/foreign-news/article/canada-canada-passes-law-regulating-virtual-currencies-as-money-service-businesses/, archived at https://perma.cc/BQA6-K7MV.
 Christine Duhaime, Canada Implements World’s First National National Digital Currency Law; Regulates New Financial Technology Transactions, Duhaime Law (June 22, 2014), http://www.duhaimelaw.com/2014/06/22/ canada-implements-worlds-first-national-bitcoin-law/, archived at https://perma.cc/4TLH-LTN5.
 Bill C-31, § 255(2).
 Id. § 258.
 Duhaime, supra note 22.
 Corin Faife, Canada Is Gearing Up to Regulate Cryptocurrency, Motherboard (Mar. 20, 2018), https://motherboard.vice.com/en_us/article/d358zk/canada-is-gearing-up-to-regulate-cryptocurrency-parliament-hearing, archived at https://perma.cc/K7AH-LDMZ.
 CSA Staff Notice 46-307 Cryptocurrency Offerings (Aug. 24, 2017), http://www.osc.gov.on.ca/en/ SecuritiesLaw_csa_20170824_cryptocurrency-offerings.htm, archived at https://perma.cc/7XF6-3T3E.
 Press Release, CSA, Canadian Securities Regulators Outline Securities Law Requirements that May Apply to Cryptocurrency Offerings (Aug. 24, 2017), https://www.securities-administrators.ca/aboutcsa.aspx?id=1606, archived at https://perma.cc/4KL4-YSEV.
 Clare O’Hara, OSC Approves Canada’s First Blockchain ETF, The Globe and Mail (Feb. 1, 2018), https://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/osc-approves-canadas-first-blockchain-etf/article37828183/, archived at https://perma.cc/V6TD-KZ5C.
 Fintech Experiments and Projects, Bank of Canada, https://www.bankofcanada.ca/research/digital-currencies-and-fintech/fintech-experiments-and-projects/ (last visited Apr. 30, 2018), archived at https://perma.cc/9F77-QHFN.
 Andrea Schneider, Project Jasper Update: White Paper Release and Phase 3 Announcement, CyberLex (Oct. 31, 2017), https://www.canadiancybersecuritylaw.com/2017/10/project-jasper-update-white-paper-release-and-phase-3-announcement/, archived at https://perma.cc/948N-6Z8S.
 James Chapman et al., Bank of Canada, Project Jasper: Are Distributed Wholesale Payment Systems Feasible Yet? 1 (Financial System Review, June 2017), https://www.bankofcanada.ca/wp-content/uploads/2017/05/fsr-june-2017-chapman.pdf, archived at https://perma.cc/UZU6-CL6L.
 Payments Canada, Bank of Canada 1 & R3, Project Jasper: A Canadian Experiment with Distributed Ledger Technology for Domestic Interbank Payments Settlement (Sept. 29, 2017), https://www.payments.ca/sites/ default/files/29-Sep-17/jasper_report_eng.pdf, archived at https://perma.cc/PH5V-UJLK.
 Payments Canada, Bank of Canada and TMX Group Announce Integrated Securities and Payment Platform as Next Phase of Project Jasper, TMX Group (Oct. 17, 2017), https://www.tmx.com/newsroom/press-releases? id=615&year=2017, archived at https://perma.cc/2B5Q-C65R.
Last Updated: 06/15/2018