Crypto mining machines

Crypto asset mining – A review of recent proposals

Crypto asset mining – A review of recent proposals

6 Minute Read

Proposed amendments to tax rules around crypto assets could impact business engaged in crypto mining activities. We explore how new definitions shift GST / HST costs under the proposed changes.

In early 2022, the Department of Finance released for public comments a set of draft proposals meant to clarify the GST / HST treatment of crypto asset activities, including crypto asset mining. These amendments are in addition to initial changes applicable as of May 17, 2019 (the 2019 Amendments).

In the 2019 Amendments, the definition of “financial instrument” in the Excise Tax Act (ETA) was amended to include a “virtual payment instrument.” The result is that the exchange of cryptocurrency was no longer considered the sale of an asset but rather as the sale of a financial instrument. However, the 2019 Amendments offered only a partial response to the problems surrounding mining activities – also known as hashpower services - and cryptocurrencies.

After the 2019 Amendments were introduced, and provided all conditions were met, the transfer or supply of virtual currencies qualified as an exempt supply of financial services. Suppliers of virtual currencies are no longer obligated to collect GST / HST. On the downside, there still remain uncertainties in relation to the entitlement of input tax credits (ITCs).

The amendments proposed on February 4, 2022, by the Department of Finance seem to be addressing the uncertainties. With these changes, crypto asset mining would not be considered a supply for GST / HST purposes. Therefore, GST / HST would not apply to hashpower services, and ITCs would not be available to the person providing the service.

New definitions outlined

The new section 188.2 of the ETA defines the terms “crypto asset" as property that exists only at a digital address of a publicly distributed ledger. It includes property that is a virtual payment instrument. It also defines "mining activity" in respect of a crypto asset that is one of the following:

  1. validating transactions in respect of a crypto asset and adding those transactions to the publicly distributed ledger (blockchain).
  2. maintaining and permitting access to the publicly distributed ledger (blockchain).
  3. allowing computing resources to be used for the purpose of performing any of the activities described in paragraph (a) or (b).

A mining group operator under the ETA is a group of persons, commonly referred as a mining pool, that coordinate the performance of mining activities by the group. The mining pool will enable members of the group to perform mining activities and might share the rewards obtained.

The new rules, as proposed, will expand who is considered to be involved in a mining activity. Under the new definition of mining activity, the situation where a person allows another person to use their computing resources for the purpose of mining is now captured as a mining activity. The result would be that the person providing the computer power to a person performing a mining activity would not be carrying on a commercial activity. Accordingly, the person leasing the computers would not be eligible for ITC’s.

Acquisition or use for mining activities

In accordance with the proposed changes, new subsections 188.2(2) and 188.2(3) of the ETA apply to the purchase, importation, consumption, use or supply of goods or services acquired by a person for mining activities. Such activities are deemed to have been made otherwise than in the course of commercial activities of the person.

Accordingly, expenses incurred in connection with such activities will not give rise to an ITC for the person in question. Whether or not the person receives a fee, reward or payment, or any other form of remuneration, for performing the mining activities has no impact on the application of this rule.

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Remuneration for mining activities

Money, property, or service received as a fee, reward or payment by a person performing mining activities is deemed not to be a supply under paragraph (a) and (b) of new subsection 188.2(4) of the ETA. Consequently, under paragraph 188.2(4)(c), no ITCs can be claimed on property or services acquired in connection with the provision of the mining services or payments made for such services.

Finance has clarified that these restrictions do not apply to property or services purchased before February 4, 2022. While not conclusive, this could be regarded as an indication that expenses incurred in mining activities prior to February 4, 2022, may be eligible for ITCs.

Exception to general rules

Under subsection 188.2(5), in situations where a mining activity is carried out for a person whose identity is known and who is not a mining group operator, the restrictions found in subsections 188.2(2) to (4) of the ETA do not apply. Accordingly, supplies of such mining activities in this context would be regarded as taxable supplies and expenses incurred to make such supplies may give rise to ITCs.

Under these new rules, a supply made to a known non-resident purchaser who is a mining group operator will be considered a mining activity subject to the new restrictions, thus not a supply. Since the service rendered is not a supply, it will not be possible to claim an ITC on expenses incurred by the supplier in this context.

Uncertainties remain

In the actual state of the legislation, and considering the particulars of crypto asset activities, it would have been difficult or impossible to regulate supplies in a context where it is mostly impossible to identify the recipient. For example, it would have been difficult to comply with the existing rules on the place of supply and regarding documentary requirements, on mining services in a case where the identity of the recipient is not known or where there is no clear determinable recipient of the supply. However, while the proposed measures attempt to offer answers to uncertainties left by the 2019 Amendments, they may be creating more confusion.

The scope of the new rules remains unclear. By way of example, before the changes, using computers was a taxable supply that gave rise to ITCs. After the changes, the same supply of computers could now give rise to a change of use and recapture of ITCs. Further, are the new rules intended to cover the creation and supply of certain digital assets such as non-fungible tokens? There is no certainty on that front either.

In terms of scope and exceptions to the new rules, while supplies made to known non-resident purchasers who are regarded as mining group operators will be subject to the new restrictions, it is not clear what the expression “mining group” refers to as it is not yet defined. There may be unintended results if one simply refers to the common understanding of a mining group in the crypto market or industry.


It may have been simpler to include mining activities in the definition of financial services. However, we can infer from the proposed changes that the mechanics and structure of the new rules may have been intended to avoid the application of zero-rating measures in the ETA, where a financial service is provided to a non-resident person.

The proposed changes have a major impact on businesses that are engaged in mining activities as GST / HST becomes a cost for miners. Their services would now be excluded from the application of GST / HST and to the extent they are able to, such miners will strive to incorporate in their cost base and consideration payable for their services the cost of the taxes they incur. From a tax policy standpoint, for a supplier who is not an end-user or consumer in any way, to be including GST / HST in its cost basis is not an ideal result.

The next step will depend on seeing what, if any, changes are incorporated into the draft legislation.

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