Canada has announced plans to adopt the International Crypto-Asset Reporting Framework (CARF) for taxation by 2026, making it one of the first nations to do so. The framework was agreed upon by the Organisation for Economic Co-operation and Development (OECD) in August 2022 and is set to be implemented in 47 countries by 2027. The decision comes as a response to the risks posed by crypto-assets and the potential for tax evasion within the rapidly growing crypto-asset markets. The 2024 federal budget highlights the need for regulation and international tax information exchange to combat tax evasion and ensure a fair tax system.
The CARF will impose new reporting requirements on crypto asset service providers (CASPs) in Canada, including crypto exchanges, brokers, and ATM operators. Examples of crypto assets that will be covered by the framework include stablecoins, derivatives issued as crypto tokens, and non-fungible tokens (NFTs). CASPs will be required to report various transactions to the Canada Revenue Agency (CRA), such as crypto-to-fiat and crypto-to-crypto transactions, as well as any crypto transfers exceeding $50,000 USD. Additionally, CASPs must collect information on their customers, including name, address, date of birth, jurisdiction(s) of residence, and taxpayer identification numbers for each jurisdiction of residence.
To support the implementation and administration of these initiatives, the Canadian government has proposed providing $51.6 million over five years, starting in 2024-25, and $7.3 million per year ongoing to the CRA. In addition to the CARF adoption, the budget plan also includes a proposal to raise the capital gains tax inclusion rate from 50% to 66% for individuals with annual incomes exceeding $250,000. This change will apply to cryptocurrency sales and has sparked concerns within the Canadian crypto community, with some individuals expressing frustration over the impact on their ability to afford housing or support their businesses.
Critics of the capital gains tax hike argue that it will make living in Canada more unaffordable and that it will negatively impact those who are using Bitcoin as a means of opting out of traditional financial systems. The tax increase is seen as a hindrance to individuals seeking to build wealth and secure their financial futures. Some within the Canadian crypto community have expressed frustration and disappointment with the government’s decision to raise the capital gains tax inclusion rate, viewing it as a barrier to achieving financial independence and stability.
Overall, Canada’s decision to adopt the International Crypto-Asset Reporting Framework and increase the capital gains tax inclusion rate reflects the government’s efforts to address tax evasion and ensure a fair tax system in the face of growing crypto-asset markets. While these measures are aimed at enhancing tax transparency and compliance among crypto asset service providers and individuals, they have also raised concerns within the Canadian crypto community regarding affordability, financial stability, and the impact on businesses and investment opportunities. The coming years will reveal how these changes will impact the crypto landscape in Canada and how individuals and businesses will navigate the evolving regulatory environment.
