The Senate of Canada has recently set its sights on cryptocurrency and the technology that surrounds it and the Senate Committee on Banking, Trade and Commerce has compiled a report on the threats and opportunities accompanying it. “Digital Currency: You Can’t Flip This Coin!” is the product of collaboration between experts and industry and, overall, comes down on the side of digital currencies. The recommendation of the report is for the government to exercise a ‘light regulatory touch’, with the aim of nurturing the technology and allowing it to grow.
Whilst the Senate does not get to dictate terms to the government, it is expected that Canada’s new Liberal government will pay attention and give due consideration to the recommendation as the Senate’s reports are usually viewed positively. Previously, the government postponed making decisions on digital currencies until the Senate had published its findings.
Some of the key issues identified in the report include the potential for cryptocurrencies to be involved with illegal activities such as money laundering, tax evasion and the financing of terrorism. According to the report, it is the anonymity provided by digital currency that makes them particularly suited to criminal activities and it recommends that it would be best for the identification of this kind of action to be carried out at digital currency exchanges. Therefore, the report recommends that client identification requirements currently applied to money service businesses are also applied to cryptocurrency exchanges. Another recommendation of the report is for cooperation between the federal government and other countries to develop global guidelines, although maintaining the ‘light regulatory touch’ would still be a priority.
Opportunities listed in the report included the possibility of innovation of the technology and Canada becoming a ‘Global Digital Currency Hub’. Canada’s high rate of Internet usage, skilled and technologically knowledgeable workforce, competitive electricity rates and potential favorable cryptocurrency view were all highlighted as possibilities in making Canada a leading player in the digital currency market.
Included in the report is a summary of governmental departments’ and agencies’ position on the tax implications of cryptocurrencies. Minimal regulation is favored by the Department of Finance and the Royal Canadian Mounted Police, which supports the view of the report. Although it provides no decision on the tax status of digital currency, the report does recommend that the federal government provides concise information on cryptocurrency tax obligations. The Department of Finance’s and the Canada Revenue Agency’s opinions on the matter are included, which are to treat digital currencies the same as either property or a commodity for income tax purposes. This would result in cryptocurrency being treated much the same as traditional currency.
If the Senate’s advice is taken by the government, digital currencies will enjoy a fairly regulation-free time in Canada, with hasty restrictions and regulations being avoided. Cryptocurrency exchanges, however, will have to comply with client identification requirements to help combat the possibility of digital currencies being used for criminal activities.