This is the fourth entry in our series of blogs examining cryptocurrencies’ regulatory and business landscape in Canada and Ontario. In our first entry, we wrote about the status of crypto trading platforms in Canada and the tighter requirements imposed for Ontario businesses offering Ontario residents access to crypto trading by the Ontario Securities Commission. Our second post reviewed the recent guidance issued by Canadian Regulators outlining the regulatory requirements and parameters for acceptable marketing practices for businesses that operate crypto trading platforms. Our third post looked at registration requirements for crypto businesses that fall under the Money Services Businesses regulatory category in Canada.
Today’s post will look at Bill C-249, which recently passed its first reading in parliament. Bill C-249 was introduced by Member of Parliament Rempel Garner and is styled as the Encouraging the Growth of the Cryptoasset Sector Act. In a video clip posted to her official Twitter account, MP Garner stated that “Canada should be attracting billions of dollars in investment in the fast-growing crypto-asset industry” and acknowledges that “innovation in crypto-assets has the power to transform the economy and many other areas of society”. We will also take a short look at a recent Tax Tip issued by the CRA on crypto-mining.
Bill C-249 aimed at encouraging growth of the crypto-asset sector
Under the provisions of the Act, the Minister of Finance must, within 18 months, develop a national framework to encourage the growth of the crypto-asset sector. This framework must “focus on lowering barriers to entry into the crypto asset sector while protecting those working in the sector and minimizing the administrative burden.”
Public consultation requirement
An additional requirement is that the Minister of Finance also holds extensive consultations with industry participants and stakeholders in developing the above framework. Specifically, the legislation requires that the Minister of Finance consult with the industry experts who are nominated by Canadian provinces and territories, who have demonstrated experience working in the crypto-asset sector, and who are not part of one of the following groups:
- Individuals who, during the five years before the day on which this Act comes into force, that were required to file a return under subsection 5(1) or 7(1) of the Lobbying Act; or who are
- Employees as defined in subsection 2(1) of the Public Service Employment Act or employees of a Crown corporation as defined in subsection 83(1) of the Financial Administration Act.
In addition, the Minister of Finance must allow soliciting comments from the general public. The intention behind the public and industry consultation period is to ensure that “the experts have a say in what policy they need, or don’t need” and that Canada remains an “attractive place to retain investment and talent while protecting those who work with crypto-assets”.
What are crypto-assets?
If you have been following our recent series of crypto-focused blogs, you will have noticed the wide variety of definitions for crypto-assets. Bill C-249 approaches the term crypto-asset from a very wide lens. Under the current wording of the bill, crypto assets are:
“digital assets that are secured by means of cryptographic systems, including the blockchain system, that do not rely on a central authority and are based on algorithms agreed to by the majority of users”
The CRA uses that definition in its Tax Tip issued on February 9, 2022, but adds a cryptocurrency focus, stating that cryptocurrency is a type of digital asset that is independent, meaning that the cryptocurrency, unlike fiat currency (traditional currency) not rely on governments, central banks, or other central authorities for backing.
Cryptocurrency mining
In the Tax Tip, the CRA provides some information on the tax implications of crypto-mining activities.
As outlined in the Tax Tip, individuals or businesses that mine crypto are compensated in one of two ways. The first is income for creating a new cryptocurrency, and the second is a payment for the successful validation by the miner.
The CRA confirms that even a single mining transaction can be considered a business activity in the right circumstances. The distinction between crypto-mining being a hobby versus a business is a case-by-case determination.
If your crypto-currency mining is considered a business, your profits on the disposition or sale are considered business income and not capital gain. Buying a cryptocurrency to sell it for a profit may also be treated as business income.
Commenting on Bill C-249
The introduction of Bill C-249 has prompted an outpouring of support from respected names in the financial industry, including Kevin O’Leary, who stated that MP Garner finally gets that “Canada has almost unlimited [hydro-electric] power [and] could lead the world in green [crypto-currency] mining if they got their policy act together”.
If you are currently pursuing a business opportunity in the crypto-asset sector, or have a general interest in the space, MP Garner has created a website supporting Bill C-249, which has forms to submit your comments on the proposal and on what the framework should look like. The website, EmpowerCrypto.ca is accessible here.
Contact Mississauga Business Lawyers For Experienced Advice on Crypto Business Matters
Running a business involves an infinite number of daily and long-term decisions, all of which will impact your venture. The business law team at Bader Law has decades of experience in establishing new legal identities for businesses throughout Mississauga and the Greater Toronto Area, be it as a private corporation, a limited liability partnership, a sole proprietorship, or a corporation needing to make a private placement of securities. Contact us online or at (289) 652-9092.