Last week I went to hockey game with some accountants. One of the Accountants was a self-proclaimed Harmonized Sales Tax (“HST”) expert. I informed him of my new found interest in how the laws of Canada apply to virtual currencies. Much to the chagrin of the other accountants at the game, he and I proceeded to have a thirty-minute conversation about the HST implications of virtual currencies. As a result of this conversation and the research I did after I came to realize that, according the Excise Tax Act in its current form, if a business sells virtual currencies for either cash or non-cash consideration that HST will be due as a result of this sale.

The Canada Revenue Agency (“CRA”) has briefly discussed the HST implications of virtual currencies in ruling 2013-051470 which was issued on December 23, 2013. Rulings issued by CRA are not binding, however they do give taxpayers a glimpse into CRA’s thinking. CRA can and sometimes does assess tax returns opposite to what a ruling states.

Ruling 2013-051470 states:

In those transactions where a taxable supply of a good or service is made and the consideration for that supply is Bitcoins, the consideration for the supply is deemed to be equal to the fair market value of the Bitcoins at the time the supply is made for the purposes of determining the GST/HST payable for the supply.

HST is due on the sale of “taxable supplies”

CRA’s above statement is mostly correct, however CRA has not discussed whether HST due on the sale of virtual currencies, and that if both parties in a transaction involving virtual currencies are registrants whether HST is due. The reason for this discrepancy is that virtual currencies themselves are a “taxable supply.” I am writing a longer article on this subject, but for this blog, I will simplify things. Every person or business that purchases a product or a service which is classified as a “taxable supply” must remit five percent (5%) percent of the value of the property or service to CRA as Goods and Services Tax (“GST”). Depending on the province an additional amount must be remitted; in Ontario this additional amount is eight (8%) percent. In Ontario the combined thirteen (13%) percent is called Harmonized Sales Tax or HST.

When property or services are considered “taxable supplies”?

A “taxable supply” is property or services that are sold, transferred, bartered for, exchanged for, rented, leased, gifted or disposed of in any way with a reasonable expectation of profit, unless the product or service is an exempt supply. Every person or business who sells a “taxable supply” must register with CRA (with some narrow exceptions), and collect HST from their customers, and in turn remit the HST to CRA. The Excise Tax Act includes many “exempt supplies” however the only category which “virtual currencies” could potentially fit into is financial services. If CRA considered “virtual currencies” money then “virtual currencies” would be considered financial services and in no circumstances could virtual currencies ever be considered a “taxable supply.” However in Ruling 2013-051470 CRA stated:

Virtual currencies, such as Bitcoins, are not considered to be a currency issued by a government of a country, such as American dollars. As such, they are generally treated as a commodity for purposes of the Income Tax Act. Therefore, using Bitcoins to purchase goods or services would be treated as a form of barter transaction.

CRA considers virtual currencies commodities and commodities are not considered financial services by the Excise Tax Act. As such as long a person is selling virtual currency with the expectation of profit, the virtual currency is a “taxable supply” and therefore HST is owed.

When HST is not due on the sale of virtual currencies

Export of Bitcoins

Even if property or services are considered a “taxable supply,” if the property or service is deemed to be a “zero-rated supply” then the effective HST rate is 0%. With some caveats the supply of intangible personal property to a non-resident that is not registered under the Excise Tax Act is considered a zero-rated supply.  If the sale is to an individual, the individual must be outside of Canada at the time of the sale. “Intangible personal property” is not defined in the Excise Tax Act. However in Canasia Industries Limited v the Queen, 2003 TCC 33 the tax court indicated that “intangible personal property” is property that grants certain rights if certain conditions are met.  Virtual currencies give the holders of virtual currencies the right exchange the virtual currency for cash, products or services. As such it is very likely that virtual currencies would be considered “intangible personal property.” As such, if a virtual currency is sold to a person or business outside of Canada, then no HST would be due. This however creates a massive issue, since many virtual currency transactions are completely anonymous and the vendor would have no idea of the residency of the buyer.

Two Registrants

The Excise Tax Act states if two registrants barter with property and both parties use the property as inventory for exclusive use in commercial activities, then no HST is due to CRA by either registrant. This is not surprising since registrants can claim a credit for all HST.

Small Supplier

In simple terms a small supplier is a supplier of taxable goods the consideration for which amounts to less than $30,000 per year. Small suppliers do not have to collect and remit HST. As such if a person or business has sources of income of less than $30,000 including from the sale of virtual currencies in a year then HST is not due.


Non-residents carrying on businesses outside of Canada do not have to collect HST for taxable supplies sold inside of Canada. As such person or business selling bitcoins from outside Canada to a person in Canada does not have to collect or remit HST to CRA.

How this effects People and Businesses Dealing with Virtual Currencies

Persons and businesses dealing in virtual currencies need to remain mindful of the HST implications. The facts of every case are different but in general if you are NOT a small supplier and are located in Canada you must become a registrant and collect HST from any non-registrant or registrant you sell virtual currency to who is located in Canada, whether the consideration is for cash or non-cash.

I plan on expanding on this article in the coming weeks to speak about the implications of selling more than $30,000 to an anonymous buyer of unknown residency.

This article is not legal advice, every situation is fact specific, and it may be unclear if your particular fact situation fits the above article perfectly. If you would like to discuss your specific situation please contact me at 519-255-7332 ext. 236 or at [email protected].