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  • Tag Archive: Canada

    1. Canadian Crypto Tax Insights from CRA’s Recent Roundtable

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      Canada Crypto Tax – Introduction

      In the rapidly evolving landscape of cryptocurrencies, clarity on taxation remains a crucial concern for both users and intermediaries.

      In a recent roundtable discussion between the Canada Revenue Agency (CRA) and the Association de planification fiscale et financière (APFF), the CRA offered insights and guidelines on several critical issues related to the taxation of cryptocurrencies.

      Transferring crypto to platform

      A scenario presented to the CRA involved a taxpayer holding bitcoins in a cryptocurrency wallet, transferring these bitcoins to a centralized platform for exchanging and lending crypto assets.

      The platform offered a variable return of approximately 4% per year in bitcoin in exchange for the deposit.

      The platform’s terms included rights to pledge, sell, or lend the bitcoins, with profits from these actions belonging to the platform.

      The depositor had withdrawal rights, and withdrawals were paid from a pooled wallet containing bitcoins from various clients.

      The crucial query posed was whether this transfer constituted a “disposition” for tax purposes, potentially leading to the realization of a gain, loss, capital gain, or capital loss upon the transfer.

      The CRA’s opinion leaned towards considering the taxpayer’s deposit as a disposition, as the platform effectively acquired rights to use, profit from, and dispose of the assets, transferring ownership away from the taxpayer.

      This stance by the CRA highlights the necessity for tax advisors to scrutinize the terms and conditions of platforms for both the platform operators and their customers.

      The determination of whether a disposition has occurred relies on assessing possession and economic risk linked to the property, rather than accepting a platform’s terms stating otherwise.

      The discussion also shed light on the changing landscape of crypto asset lending platforms. Over the past 24 months, these platforms offering returns on cryptocurrency deposits have seen a decline.

      Regulatory bodies such as the U.S. SEC and the Autorité des marchés financiers du Quebec clarified that crypto asset deposit accounts fall under securities, requiring compliance with securities laws. Notably, prominent U.S.-based lending platforms faced insolvency protection in 2022.

      In Canada, custodial crypto asset trading platforms (CTPs) are regulated as dealers under applicable securities law.

      They must explicitly state in their terms that crypto assets are held separately for clients. Unlike the terms of crypto asset lending platforms, transfers to CTPs might not generally constitute a disposition, subject to specific circumstances.

      Other scenarios discussed

      Moreover, the CRA addressed two other cryptocurrency taxation scenarios during the roundtable:

      1. Loss due to exchange fraud or theft: The CRA suggested that losses due to centralized exchange fraud or theft should be eligible for tax realization.
      2. Proving business loss upon platform bankruptcy: The CRA outlined evidence, including documentation of fraud/bankruptcy, account activation, contracts, claims filed, recovery proceedings, and evidence of unsold cryptocurrency.

      Canada Crypto Tax – Conclusion

      The insights from the CRA’s discussion offer valuable guidance, emphasizing the need for a nuanced understanding of terms and conditions within crypto platforms.

      Further, it highlights the need to maintain meticulous records for taxation purposes in the evolving cryptocurrency landscape.

       

      If you have any queries on Canada Crypto Tax, or other Canadian tax matters, then please get in touch.

    2. Employers and Remote Work in Canada

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      Introduction

      As remote work becomes the new norm in many industries, employers face a maze of tax obligations when their employees operate from Canada

      Whether intentional or a result of Covid-19 travel restrictions, these arrangements can spark a range of tax issues for non-Canadian employers. 

      In this blog, we shed light on some key considerations and obligations that employers must navigate when their employees work remotely in Canada.

      Payroll Tax Obligations

      Having an employee in Canada triggers payroll tax obligations for the employer.

      These include deductions for income tax, Canada Pension Plan (CPP) contributions, employment insurance (EI) premiums, and any applicable provincial payroll taxes. 

      While resident and non-resident employers share similar obligations, non-resident employers without a presence in Canada may not be required to withhold CPP contributions. 

      Similarly, they may not withhold EI premiums if they are payable under the employment insurance laws of the employee’s home country. 

      However, when CPP contributions and/or EI premiums are due, the employer becomes liable for these on its own account.

      Non-Resident Employer Certification

      Under a non-resident employer certificate regime, certified employers resident in a treaty country may be exempt from deducting and remitting Canadian income tax on remuneration paid to qualified non-resident employees. 

      To qualify, employees must be residents of a country with which Canada has a tax treaty, and they must be exempt from Canadian income tax on the remuneration due to the treaty. 

      Additionally, the employees must not be present in Canada for 90 or more days in any 12-month period, or not in Canada for 45 or more days in the calendar year that includes the payment time. 

      While this certification offers relief, employers should ensure ongoing reporting and compliance to maintain eligibility.

      Regulation 102 Waiver

      For employers without non-resident certification or non-qualifying employees, a Regulation 102 waiver may be sought if the remuneration is exempt from Canadian income tax due to a tax treaty.

      Income Tax Obligations

      Having an employee in Canada may expose the employer to the risk of being considered to be “carrying on business” in Canada. 

      A non-resident carrying on business in Canada is generally liable for tax on profits from such activities, subject to any treaty exemptions. 

      Certain activities of the employee, such as soliciting orders or offering sales in Canada, may cause the employer to be deemed to be carrying on business in the country. 

      Employers entitled to treaty benefits are exempt from Canadian income tax on business profits if they do not have a permanent establishment (PE) in Canada. 

      However, certain scenarios, like employees having the authority to conclude contracts, may trigger PE status and tax obligations.

      Regulation 105 Obligations and Waiver

      When employees provide services in Canada, the employer’s customer may need to deduct and remit 15% of the payment for those services to the CRA unless a waiver is obtained. 

      Employers can apply for waivers to reduce or eliminate withholding taxes, depending on treaty provisions and income projections.

      Indirect Value-Added Taxes

      Value-added taxes (GST/HST) apply on the supply of goods and services in Canada, requiring non-resident employers to register and comply with the GST/HST regime if they make taxable supplies in the country.

      Conclusion

      In sum, remote work arrangements in Canada can create complex tax implications for non-Canadian employers. 

      Understanding and fulfilling these obligations is essential to avoid potential pitfalls and ensure compliance with Canadian tax laws. 

      Seeking professional advice can illuminate the path forward and help employers navigate the tax terrain with confidence.

      If you have any queries about this or other Canadian tax matters then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    3. Canada: Federal Fall Update

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      Canada Federal Fall Update Introduction

      Measures announced in the 2021 Federal Fall Economic Update will be implemented by Bill C-8. On 4 May 2022, this Bill passed its third reading in the House of Commons on 4 May 2022.

      Its contents will enact measures including:

      • the temporary Small Businesses Air Quality Improvement Tax Credit;
      • the new refundable tax credit for farming businesses; and
      • the Underused Housing Tax Act

      Other measures are also included.

      The first reading of the Bill took place on December 15, 2021.

      The temporary Small Businesses Air Quality Improvement Tax Credit

      The new Bill will include a refundable 25% tax credit for qualifying entities, which have qualifying expenditures for air quality improvements. This expenditure must have been incurred between 1 September 2021 and 31 December 2022.

      Qualifying entities will include both unincorporated sole proprietors and Canadian-controlled private corporations with taxable capital employed in Canada of less than $15 million in the tax year directly preceding it.

      A maximum of $10,000 is available in qualifying expenditures per qualifying location. The credit is capped at a maximum of $50,000 across all qualifying locations. It should be noted that these two ‘caps’ are shared amongst affiliated businesses.

      Refundable tax credit for farming businesses

      The contents of the bill also includes the new refundable tax credit to return fuel charge proceeds from pollution pricing directly to farming businesses in certain provinces.

      These provinces include Ontario, Manitoba, Saskatchewan and Alberta. The scheme started in 2021.

      The refundable tax credit is available to taxpayers who are actively engaged in either the management or day-to-day activities of farming. This includes farming enterprises that are carried out through a partnership.

      A qualifying farming business must incur total farming expenses of $25,000 and those expenses must be at least partly attributable to the provinces mentioned above.

      Underused Housing Tax Act

      The bill also includes the proposed legislation behind the Underused Housing Tax Act. This legislation will result in an annual tax of 1% on the value of vacant or underused Canadian residential real property.

      The property must be owned either directly or indirectly owned by non-resident non-Canadians.

      The new annual tax applies beginning in the 2022 calendar year.

      If you have any queries about this article, the Canada Federal Fall Update, or the matters discussed more generally, then please do not hesitate to get in touch.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.