Digital currencies are becoming increasingly prevalent and undeniable within the financial landscape or our world. Alongside the increase in global adoption rates of cryptocurrencies, Canada has been relatively successful in its regulation of the digital asset. In Canada, cryptocurrencies are not considered legal tender. Only fiat currencies issued by the Royal Canadian Mint and the Bank of Canada will be considered as legal tender. However, the Bank of Canada (central bank of the country), has been experimenting with token-based digital currencies known as “CBDCs” (Central Bank Digital Currencies) which could potentially support the digital payment markets. Instead, cryptocurrencies are currently regulated primarily under their securities laws. Before you set up cryptocurrency company in Canada, join Tetra Consultants as we share with you the beginners’ guide to Canada cryptocurrency regulation in 2022.
1) Sales Regulation of Security:
The first thing to know about Canada cryptocurrency regulation in 2022 is its sales regulation. Securities laws in Canada are enacted on a provincial and territorial basis as opposed to federally. However, the securities rules throughout the various provinces have largely been standardised. The securities rules fall upon the organisation of Canadian Securities Administrators (CSA), and they represent all provincial and territorial mandated securities regulators. As mentioned earlier, cryptocurrency is considered a security under Canadian securities legislation as it fulfills the four elements of an “Investment Contract Test”. The four elements of the contract can be broken down into: there must be investment of money; with intention or expectation of profit; in common enterprise; and the success or failure of the investment is largely affected by efforts of those other than the investor.
The CSA has issued many notices and statements on topics regarding the potential application of securities laws to cryptocurrency offerings (CCOs). According to the CSA, apart from its non-exclusive list of securities stated in the securities act, any offerings that fall within the policy or objectives of the securities act would also be subjected to securities regulations, in this case any digital coins or tokens included. The CSA has also mentioned platforms which offer and facilitate the buying and selling or exchange of crypto-assets, known as Crypto-Asset Trading Platforms (CTPs), will trigger securities regulation as well.
In Canada, except the available exemption, a prospectus must be officially filed and approved prior to the legal distribution of securities and anyone who deals with such distributions must be registered with the Canadian securities regulators. Under the Canada cryptocurrency regulation, cryptocurrency reporting issuers can meet their disclosure obligations by providing the following: description of issuer’s business and any reliance on third party services, risk to the issuer’s business, any material changes to issuer’s business operations, issuer’s compliance with cryptocurrency accounting and auditing standards, the prevention measures taken against theft or loss of crypto-assets and issuer’s of cryptocurrencies have to disclose whether they utilise or relies on a crypto-asset trading platform to hold the digital assets.
2) Tax Treatment for Cryptocurrencies:
The second thing to know about Canada cryptocurrency regulation in 2022 is that for the bulk of it, there still remains a high level of uncertainty with little administrative guidance. The Canada Revenue Agency (CRA), currently holds the position that cryptocurrencies are not “currencies” that fall under income tax purposes. In contrast, it is akin to a commodity, although intangible, of which its value is subjected to fluctuation on the basis of demand and supply as well as investor sentiments. Given its properties, it makes more sense to compare cryptocurrencies to precious metals such as gold and silver or a publicly traded security. However, much of the analysis conducted so far with regards to the potential tax treatment in Canada on cryptocurrencies related transactions are founded on the basis of extrapolations and hypothetical estimations, allowing for minimal conclusion. According to the CRA, possession or holding of crypto currency is not taxable but there could be tax consequences in the event that you sell, trade, exchange or convert cryptocurrencies.
3) What are MSBs and its Requirements:
The third and final thing to know about Canada cryptocurrency regulation in 2022 is that cryptocurrencies companies fall under what is known as a Money Services Business (MSB) and MSB are subjected to additional requirements that falls under the “Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA)”. Firms that operate in the dealing of virtual currency are considered as an MSB, and are thus required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). As an MSB, the general requirements you have to include formatting a compliance program in line with financial regulations, reporting of various reports as well as the recording of transactions and client identifications. Under the PCMLTFA, suspicious transactions, terrorist property and large fund transactions must be submitted to FINTRAC.
Engage Tetra Consultants as we guide you on how to set up a cryptocurrency company in Canada in a smooth and hassle-free process. The team provides a comprehensive service package that includes planning and strategizing with our clients to select a suitable business entity, completing the registration and documentation processes, obtaining required licenses, opening a corporate bank account, and ensuring your compliance with the government regulations.
Contact us to find out more about cryptocurrency company registration in Canada and our dedicated and experienced team will revert within the next 24 hours