April 25th, 2024
The CRA recently published a new version of GST/HST Notice No. 324—Mining Activities in respect of Cryptoassets. This update reflects the impact of the addition of section 188.2 ETA and the amendment of the definition of “commercial service” for the cryptoasset industry and those engaged in mining activities.
What is a mining activity under subsection 188.2(1) of the ETA?
- An activity of validating transactions in respect of a cryptoasset and adding them to a publicly distributed ledger on which the cryptoasset exists at a digital address;
- An activity of maintaining and permitting access to a publicly distributed ledger on which a cryptoasset exists at a digital address; or
- An activity of allowing computing resources to be used for the purpose of, or in connection with, performing activities described in paragraph (a) or (b) in respect of a cryptoasset.
Consequences for a person carrying out mining activities:
- Collection of tax:
Subsection 188.2(4) ETA provides that, for GST/HST purposes, subject to the exclusion in 188.2(5) ETA, if a person receives a mining payment in respect of the provision of the mining activity, the performance of the mining activity is deemed not to be a supply.
As a result, the person is not required to collect GST/HST in respect of the provision of the mining activity. This rule applies to any remuneration received after February 4, 2022 as a result of performing mining activity.
- ITC/ITR eligibility:
Subsection 188.2(2) ETA provides that, for GST/HST purposes, subject to the exclusion in 188.2(5) ETA, to the extent that a person acquires, imports, or brings into a participating province property or a service for consumption, use, or supply in the course of, or in connection with, the person’s mining activities, the person is deemed to have acquired, imported, or brought such into the participating province for consumption, use, or supply otherwise than in the course of the person’s commercial activities.
Thus, this person is not eligible to claim an input tax credit (ITC) in respect of such property or service acquired, imported, or brought into a participating province after February 4, 2022.
This rule applies even if the person receives no remuneration as a consequence of performing a mining activity, for example, when an acquired good or service is used as part of an unsuccessful and therefore unpaid validation of operations.
In addition, under 188.2(3) ETA, if a person consumes, uses, or supplies a good or service in the course of — or in connection with — these mining activities, such consumption, use, or supply is deemed to be made outside the course of the person’s commercial activities. This rule applies if the consumption, use, or supply of the good or service occurs after February 4, 2022.
- Self-assessment:
The exclusion in the definition of imported taxable supply for goods and services acquired for consumption, use, or supply exclusively in the course of commercial activities generally does not apply to goods and services acquired for consumption, use, or supply, in whole or in part, in mining activities. The requirement to self-assess tax on imported taxable supplies must therefore be considered.
Consequences for a person who provides a mining payment:
- Collection of tax:
Paragraph 188.2(4)(b) ETA provides, subject to the exclusion in 188.2(5) ETA, that the provision of a mining payment in respect of a mining activity is deemed not to be a supply.
- ITC eligibility:
Paragraph 188.2(4)(c) ETA provides that, subject to the exclusion in 188.2(5) ETA, in determining an ITC of a person that provides a mining payment in respect of a mining activity, no amount is to be included in respect of GST/HST that becomes payable — or is paid without having become payable — by the person in respect of property or a service acquired, imported, or brought into a participating province for consumption, use, or supply in the course of — or in connection with — the provision of the mining payment by the person.
Applicable conditions for the exception provided for in subsection 188.2(5) ETA:
- The identity of the other person is known to the supplier;
- Where the mining activity is in respect of a mining group that includes the supplier; the other person is not a mining group operator in respect of the mining group; and
- Where the other person is a non-resident and is not dealing at arm’s length with the supplier, each property or service received by the other person from the supplier as a consequence of the performance of the mining activity, is supplied, or is used or consumed in the course of making a supply by the other person to one or more persons each of which
- is a person whose identity is known to the other person;
- deals at arm’s length with the other person; and
- is not a mining group operator in respect of a mining group that includes the other person if the mining activity is in respect of that mining group.
Consequences of the exception to 188.2(5) ETA:
The rules set out in 188.2(2), 188.2(3) and 188.2(4) ETA do not apply. General GST/HST rules apply.
Here are some examples from CRA’s GST/HST Notice No. 324—Mining Activities Relating to Cryptoassets:
Example 1
Corporation A owns computing equipment for use in mining activities. Corporation B wishes to conduct mining activities and requires equipment which will allow Corporation B to validate cryptoasset transactions and add them to a publicly distributed ledger. Corporation B engages Corporation A for the supply of the use of Corporation A’s mining equipment. Corporation B is not a mining group operator for a group that includes Corporation A. Corporation A and Corporation B deal with each other at arm’s length. Subsection 188.2(5) applies to Corporation A’s supply to Corporation B given that Corporation B’s identity is known to Corporation A. Therefore, subsections 188.2(2) to (4) do not apply and the supply is subject to the general GST/HST rules.
Example 2
Corporation C owns computing equipment and wishes to conduct mining activities. Corporation D operates a mining pool and acts as the operator of the pool. Corporation D offers interested persons the opportunity to join the mining pool to conduct mining activities. Under the agreements between Corporation C and Corporation D, Corporation C agrees to contribute the computing power from its computing equipment into the pool to conduct mining activities. Corporation C receives a share of the actual mining payments received by the pool through Corporation D. Corporation C shares in the risk of the mining activities of the pool and earns payments based on the actual payments earned by the pool through Corporation D. Corporation C joins Corporation D’s mining pool.
The pool is considered to be a mining group for the purposes of section 188.2. Based on the arrangements, Corporation C is a member of the mining group. Any supplies that Corporation C makes to Corporation D that are mining activities are subject to the provisions of subsections 188.2(2) to (4) given that subsection 188.2(5) does not apply. However, any supply of mining activities made by Corporation D to Corporation C is not subject to the provisions of subsections 188.2(2) to (4) as subsection 188.2(5) does apply. Corporation C is not a mining group operator and Corporation C’s identity is known to Corporation D. The supply made by Corporation D to Corporation C is subject to the general GST/HST rules and Corporation C is not entitled to claim ITCs related to this acquisition in accordance with subsection 188.2(2).
Example 3
Corporation E owns computing equipment for use in mining activities. Corporation F operates a mining pool and acts as the operator of the pool. Corporation E and Corporation F are dealing with each other at arm’s length. Under the agreement between Corporation E and Corporation F, Corporation E agrees to contribute computing services from its equipment to Corporation F for the purposes of Corporation F’s mining activities. Under the agreement, for the computing services provided, Corporation E receives compensation based on the estimated mining payments expected to be generated using Corporation E’s computing services. Corporation E receives this compensation regardless of the success of Corporation F’s mining pool operations and there is no risk to Corporation E in terms of compensation adjustments should the mining pool not be successful in achieving those estimated mining payments. Corporation E bears no risk with regards to the mining endeavour. Corporation E is not subject to any fees charged by Corporation F or compensation reductions with respect to Corporation F’s management or administration of the mining pool.
While Corporation F’s mining pool may be considered to be a mining group for the purposes of section 188.2, Corporation E would not be a member of the mining group. Any supplies that Corporation E makes to Corporation F that are mining activities are not subject to the provisions of subsections 188.2(2) to (4) as subsection 188.2(5) applies. Accordingly, those supplies are subject to the general GST/HST rules.
