Bitcoin is a digital currency backed by blockchain technology. Due to its volatility, the finance and tech world always remains skeptical in Canada. Therefore it is worth answering the question: Is bitcoin legal in Canada?
The Canadian Central bank does not regulate digital currency. It is created from a peer-to-peer network. Therefore, it is hard to check.
In Canada, there is a misconception that cryptocurrencies are legal. However, it needs to mention that crypto trading is legal. The government has not yet made it legal tender.
This shows one can buy or sell a digital currency but cannot be used for setting financial obligations.
Let us dive into this topic more deeply and understand the nuances of legality attached to it.
1. Is Bitcoin Legal in Reference to Canada?
The Canadian government allows Bitcoin or any digital currency transactions in retail stores. Canada launched Bitcoin ETF in 2021, which earned ~$800 million.
However, it does not mean there will be any legal liability if fraud or cheating occurs related to a transaction.
1.1. Legal Tender in Canada
Legal tender of any currency means it is backed by the central bank and used for financial obligations to settle. On the other hand, Bitcoin doesn’t have the protection of a central authority as of 2023.
This means that departmental stores or small businesses can accept digital currencies. But, the Financial institutions will not recognize them.
The Canadian dollar is the only legal tender in Canada, with Notes issued by Canadian Central Bank and coins issued under Royal Canadian Mint Act.
1.2. Various Restrictions on the Use of Bitcoin
People can use it to buy daily use items from stores and can buy or sell digital currency.
- It cannot be used for Paying taxes.
- Cannot make payments to government departments.
- No insurance from federal or provincial deposit insurance plans can be used. The Canada Deposit Insurance Corporation only accepts Candian Dollars as legal tender.
- Saving accounts cannot be opened.
- Merchants are at risk if they accept digital currencies for their business income.
- Crypto assets or digital assets have no protection from the government.
2. Canada’s Cryptocurrency Regulation
In Canada, cryptocurrencies are regulated under Securities legislation as it is based on a speculative market. It is regarded as an instrument of the security market for profit earning on trading.
The other agency is The Investment Industry Regulatory Organization of Canada (IIROC). It is a government authority responsible for policy-making and strict investment regulations.
2.1. Cryptocurrency in Securities Exchanges
The Canadian Securities Administrators (CSA) and The Investment Industry Regulatory Organization of Canada (IIROC) have recently issued guidelines to set up Crypto exchanges, like a stock market, for safe trading.
They will be registered as Virtual Currency Trading Platforms (VCTF). In 2021, the Ontario Securities Commission (OSC) set up six exchanges based on the Crypto Trading Operation.
The Ontario Securities Law has been modified to include digital currency transactions as financial transactions which can be regulated.
2.2. Tax Policy on Cryptocurrency
The Canada Revenue Agency (CRA) treats digital currency as a commodity on which capital gains tax and income tax applies. Cryptocurrency is subjected to both the Income Tax Act and GST.
GST applies to goods and services based on their fair market value bought through digital currency.
However, Crypto Exchange earnings will be determined by the tax inspectors. Income Tax Act barter rules are also applicable when anyone buys a cryptocurrency.
The Canadian government has given a detailed guide for tax returns on these earnings.
3. Bitcoin Mining in Canada
Mining Bitcoin means generating new bitcoins by using computer algorithms. It is a highly electricity-intensive activity and needs heavy machines.
Mining is legal in Canada as long as Canadians pay taxes and pay bills for electricity. Crypto miners find Canada an attractive destination because of lower electricity costs.
Recently, many mining companies have set up offices in Quebec and British Columbia provinces. They have helped Canada to emerge as a global mining site for bitcoins.
4. Do Canadian Banks Accepts Cryptocurrency?
Although Crypto Currency is not legal in Canada, a network of Bitcoin ATMs is emerging and being promoted by the government.
For the first time in the world, the Canadian government started to think of a payment method based on Distributed Ledger Technology.
Here, the Bank of Canada uses technology for transferring and settling payments. It has also signed an agreement with MIT to study the feasibility of a future Central Bank Digital Currency.
4.1. Banks Dealing in Cryptocurrency
Various banks in Canada are dealing in Crypto Currency, especially Bitcoin. Toronto-Dominion Bank, Royal Bank of Canada, Canadian Imperial Bank of Commerce and others are in business.
One has to link the bank account with crypto asset trading platforms or exchanges for crypto trading. Binance, Coinbase and Coinsmart are some of the legal stock exchanges in Canada.
According to reports, more than 2500 Bitcoin ATMs have been set up by Canadian Banks. They are used for the exchange of Canadian Dollars for bitcoins.
4.2. Trading Crypto Assets in Canada
Cryptocurrencies like Bitcoin, Ether, and others are not legal tenders. However, they are allowed to trade on the exchanges. Cryptocurrency exchanges require a bank account to be linked with it.
Canadian residents can buy or sell bitcoin and pay taxes on the capital gain. Businesses can accept payments in digital currencies for the products they deliver.
The Canada Revenue Agency (CRA) regulates digital currency by applying tax laws, making Crypto Currency legal in Canada.
4.3. Digital Currency Wallet
A digital currency wallet is a computer program that enables users to add, pay and accept cryptocurrencies like Bitcoin, Ether, Dogecoin, Litecoin, etc.
Crypto transactions are legal in Canada. Various wallets are currently working in Canada. They allow digital assets to be tradable for the exchange of something.
- Ledger Nano S
These wallets are safe to use as they use two-step verification and allow users to set strong passwords.
5. Illegal Activities Associated with Cryptocurrency
Although digital currency is transforming people’s lives, several activities are responsible for losses to businesses and governments.
Due to its decentralized and pseudonymous nature, the digital currency has become a headache for financial regulators.
5.1. Money Laundering
People with black money use this technology to convert their illegal assets into digital currency and then show them to the authorities for tax purposes to legalize them.
5.2. Tax Evasion
As this currency is still not regulated, people are evading their money by converting it into digital currency.
5.3. Crypto Contract and Illegality
Businesses are now making contracts for doing business through Crypto Currency. They accept Crypto Currency in exchange for goods and services and do not show them to authorities.
Illegal goods and services on the dark web are now bought and sold using cryptocurrencies to avoid government oversight.
5.5. Ransomware Attacks
Cryptocurrency allows one to pay ransomware demands digitally and does not need any middleman. Cryptocurrency transactions are taking place for Hawala Transactions (Underground Banking).
6. Frequently Asked Questions (FAQs)
On which technology is Bitcoin based?
Blockchain technology enables Bitcoin on a decentralized system that makes secure payments without intermediaries like Central Bank.
Blocks are created for payments in a timely order. These blocks make it a secure and tamper-proof record.
How are Bank Notes different from Crypto Currency?
Central government authority issues banknotes. It is a legal tender with universal acceptability in the country. On the other hand, any person can mine cryptocurrency. Therefore does not have legal backing. It has limited usage.
Define Bitcoin ETFs.
Bitcoin Exchange Traded Funds allow users to invest in bitcoins without owning them. It enables one to buy ETF shares that are tradable in stock markets. It is like indirectly owning bitcoin, like owning shares in a company.
What are Securities Legislations?
Laws govern the sale and purchase of market securities such as bonds, shares and mutual funds. In Canada, cryptocurrencies come under these legislations as securities.
What is a Cryptocurrency Exchange?
It is like an online marketplace where people can buy, sell and exchange cryptocurrencies with fiat currencies like US Dollars, Canadian Dollars etc. It can also be used for cryptocurrency exchanges.
What is Fiat Currency?
Fiat currency is the legal currency government issues like US Dollar, Canadian dollar, Indian Rupee, etc. Gold or silver does not become the basis of this currency.
Is Bitcoin legally Permitted in Canada?: After reading the article, it is clear now that Bitcoin is legal in Canada, with some restrictions on its use and with governmental oversight. Canada Revenue Agency watches these transactions to make cryptocurrency taxable.
Due to low-cost electricity and government support, Canada has emerged as a hub for Bitcoin and other digital currencies. However, various illegal activities are also gaining ground.
With proper regulation and setting up infrastructure, this technology can be a boon for the economy of Canada. Strict laws need to be enacted for better user experience for cryptocurrency transactions.