Canada classifies crypto activity as money service businesses
National exchanges have been more or less wary of treating cryptocurrencies as recognized legal tender within their concerned territories. With concrete regulations being drafted almost every passing month, countries like Canada and the United States are looking to understand cryptocurrencies better and pass comprehensive laws to ensure sufficient regulation.
This blog looks at the current state of crypto regulations in Canada.
Historically, Canada was the first country globally to include cryptocurrency platforms under the umbrella of a “money service business” in the context of financial regulation. As early as 2014, the country announced regulations prohibiting money laundering and terrorist financing. As a result of the law, companies dealing in virtual currencies are expected to register with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) and put into effect compliance programs to “keep and retain prescribed records” of all cryptocurrency transactions.
Canada allows the unrestricted use of all digital currencies, including cryptocurrencies.
Cryptocurrency transactions are also considered taxable under the Canadian Income Tax Act of 1990. The cryptocurrencies themselves, however, are not considered legal tender in the country. The Canadian Revenue Agency classifies all cryptocurrencies as general commodities that are subject to barter transactions.
At the same time, the Canadian Securities Administrators (CSA) issued directives for the use of cryptocurrencies in March 2021. The directives do not recommend outright the banning of cryptocurrencies, which comes as a huge victory for crypto-investors. While this or other looming notices do not hint towards assigning cryptocurrencies the ‘legal tender’ status they have been seeking, they are a big step towards helping crypto platforms register as either investment dealers or marketplaces, depending upon their functions and the volume of their everyday transactions.
In addition to the above, the Bank of Canada is actively assessing the outcomes of introducing a central bank-regulated digital currency (CBDC). Compared to conventional cryptocurrencies, the bank has also stated that “stablecoins” are better for widespread adoption and potential financial revolution in the world of money and payments. Finally, it is worth noting that in Canada, cryptocurrency transactions are audited under various tax laws and rules, including the Income Tax Act meaning using cryptos does not exempt you from Canadian tax obligations.
Looking ahead, it is likely that Canada will continue to be among the leading countries in terms of framing and implementing crypto regulations. Additionally, the country has also taken the lead in terms of accepting stable coins as a widespread currency. It is expected that the country will continue its regulatory work in this direction by refining its laws even further.
Major world economies like Canada and the United States have constantly looked to develop regulations that help categorize cryptocurrency platforms under well-defined legal brackets. These regulations aim to track and manage cryptocurrency transactions better as they become an essential part of modern business operations.
While these national securities commissions might still be far from considering cryptocurrencies as valid legal tender, they are expected to take more positive steps towards understanding the world of crypto better and giving it the legal recognition it has sought.
For more up-to-date information about crypto regulation in Canada and the wider North American region, follow Crystal’s blog for insights.