Canada: A Beginner's Guide To Canadian Cryptocurrency Regulation

Last Updated: April 22 2019
Article by Joseph Gill

In the past decade, we have seen the creation and massive expansion of what is commonly referred to as "cryptocurrency". Cryptocurrencies are essentially digital "currencies" that operate through blockchain technology as a medium of exchange and do so independently from centralized banks. Cryptocurrencies are regulated by encryption techniques that control the number of "units" and use their own networks of users to verify transfers between parties. The use of cryptocurrencies has become widespread, with over 1,600 different types existing worldwide. However, the regulation of cryptocurrencies has not kept up with this growth and questions now arise as to how cryptocurrencies should be treated under the law. The following discussion identifies several relevant legal issues currently faced by the holders, traders, and issuers of cryptocurrencies.

Securities Law – Are Cryptocurrency Issuers Selling Securities?

This issue impacts both issuers and purchasers of cryptocurrency, as issuers of securities in Canada must comply with the requirements of securities legislation, which includes filing comprehensive disclosure documents with securities regulators. The test in Canada to determine if a cryptocurrency coin offering is a "security" is whether the offering creates an investment contract. An investment contract exists when there is: (1) an investment of money (2) in a common enterprise (3) with the expectation of profit (4) to come significantly from the efforts of others. Issuers should also note that "free" offerings which require one to promote the offering via social media may nonetheless trigger securities law. Those issuers have an incentive to promote the offering as an investment, suggesting the token will increase in value.

Anti-Money Laundering – Do I Have to Record-keep and Report Cryptocurrency Sales?

Cryptocurrencies can facilitate money laundering since traders of the commodity are able to remain totally anonymous. In order to combat money laundering, Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires money services businesses ("MSB") to comply with reporting and record-keeping requirements. However, Canada's Act does not currently include virtual currencies within the definition of MSBs. As a result, amendments have been proposed that, if accepted, would include cryptocurrencies and make their dealers subject to customer due diligence, recordkeeping, monitoring, and other reporting requirements.

Taxation – How is my Cryptocurrency Taxed?

When filing your tax returns, those with significant cryptocurrency "wallets" may ask themselves: is cryptocurrency treated as property or as currency? This question requires one to consider how cryptocurrencies are treated under the Income Tax Act and the Excise Tax Act. The answer in both the U.S. and Canada is that cryptocurrencies are treated as commodities, similar to an investment in stocks, as cryptocurrency is not a government-issued currency. This means that an individual's cryptocurrency portfolio would be fully taxed as business or property income, depending on the nature of their involvement in the cryptocurrency market. This also means that those who experience a loss of value in their cryptocurrency wallet may be eligible to deduct such losses as business expenses or may be able to claim capital losses to be used to off-set future capital gains.

Treating cryptocurrency as a commodity also means that all cryptocurrency transactions are considered barter transactions. The result is that the value of any goods and services bought using cryptocurrency must be included within the seller's income for tax purposes. There is also an obligation to collect and remit Goods and Services Tax (GST) on the fair market value of goods and services bought with cryptocurrency.

Family Property – How is my Cryptocurrency Wallet Valued Upon Separation?

Given that cryptocurrency is treated as a commodity and not currency for taxation purposes, one may also ask how it would be treated in the event of a separation. The general conclusion is that cryptocurrency would be valued and divided in accordance with the rules regarding family property. However, this is a complex issue, as there would be difficulty in valuation, as some cryptocurrencies have an associated CAD or USD price, while others only have a value relative to a larger cryptocurrency. Furthermore, given the volatility in cryptocurrency values, parties ought to mutually agree to a specific time of valuation, as the value at the date of petition may alter significantly from the date of adjudication.

Will & Estates – Can I Leave my Cryptocurrency Wallet to a Beneficiary of my Estate?

Whether someone is drafting their will or considering how to deal with an estate, questions may arise as to how a cryptocurrency wallet will be treated. In Canada, because cryptocurrencies are a taxable commodity, they may form a part of the assets of an estate. However, the real issue in leaving digital currencies to a beneficiary is how they will be accessed after one's passing. All cryptocurrency accounts are protected by a private key and would be inaccessible and inactive without it. The simple way to address this issue is to ensure that the wallet is declared as an inheritable asset and to entrust the private key to the advisor of the estate, with specific instructions on how to access the account.

Conclusion

As this post has hopefully illustrated, there are a myriad of legal issues concerning both the purchase and sale of cryptocurrency as well as with the business of offering cryptocurrency. The lawyers at McKercher LLP have experience assisting both cryptocurrency issuers and regular investors with understanding the legal implications of their cryptocurrency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions