Altcoin purchases on Ontario-based crypto exchanges are now subject to an annual limit of $30,000 CAD
Published: July 5, 2023
Ontario crypto exchanges have imposed a yearly purchase limit
Bitbuy and Newton, two cryptocurrency exchanges based in Canada, have implemented a yearly purchase limit of $30,000 Canadian for "restricted coins" for their users residing in Ontario. This measure aims to safeguard consumers in light of stricter regulations. Newton, headquartered in Toronto, disclosed that these changes were introduced following its registration process with the Ontario Securities Commission and other securities regulatory authorities in various Canadian provinces and territories. In a post on Tuesday, Newton stated, "These modifications are aimed at protecting crypto investors, such as yourself, and ensuring that investors are fully aware of the risks associated with investing in crypto assets."
Under the new regulations, cryptocurrency traders in Ontario utilizing Newton and other Canadian crypto platforms will be subject to an annual net buy limit of $30,000 CAD for all cryptocurrencies except Bitcoin (BTC), Bitcoin Cash (BCH), Ether (ETH), and Litecoin (LTC). Additionally, if a trader purchases and subsequently sells a restricted coin, the transactions will be taxable events (coin to coin trades or conversions are also taxable) and the sell amount will be deducted from their limit, which resets every 12 months from the initial purchase of restricted coins.
The introduction of these purchase limits coincides with Newton's announcement that it has achieved official registration as a "restricted dealer" in Ontario, making it subject to the regulations enforced by the Ontario Securities Commission (OSC). Furthermore, the platform has implemented other changes to protect consumers, including a "trading questionnaire" that collects information from users regarding their past crypto investment experience, financial situation, and risk tolerance. Completion of the questionnaire is mandatory for funding the account and trading on the platform. Newton will also send traders notifications if their portfolio experiences a loss level indicated in the questionnaire as being uncomfortable for the trader.
The restriction extends to other Canadian provinces
Bitbuy, a Canadian crypto exchange, had previously confirmed similar purchase limits earlier in the year. These restrictions also apply to users in several other Canadian provinces, including Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, Northwest Territories, Nunavut, and Yukon. Like Newton, Bitbuy requires traders to complete a questionnaire to determine their classification as a Retail Investor, Eligible Investor, or Sophisticated Investor. Retail Investors remain subject to the $30,000 CAD purchase limit, while Eligible Investors have an increased limit of $100,000 CAD, and there is no purchase limit for Accredited Investors.
Newton has provided traders with an overview of the forthcoming rules. Ontario, which encompasses nearly 40% of the Canadian population and includes the major metropolitan hub of Toronto, is a significant market for the exchange. Newton highlighted that each Canadian province and territory has its own securities regulatory authority, which collectively form the Canadian Securities Administrators (CSA).
In addition to consumer protection, Canadian regulators are also focused on other aspects. In April 2021, the Canadian federal government announced a legislative review of the financial sector, with a specific emphasis on enhancing the stability and security of digital currencies and establishing a central bank digital currency (CBDC).
The CRA has shifted its focus on cryptocurrency tax
The Canada Revenue Agency (CRA) has been focusing on cryptocurrency trading by imposing stricter rules on crypto exchange platforms for the past several years. According to our leading Canadian cryptocurrency tax lawyers, maintaining comprehensive records of your cryptocurrency transaction history is crucial for safeguarding against potential crypto tax audit issues with the CRA. Given that trading, selling, and mining cryptocurrency coins and tokens can have significant tax implications, it is essential to keep detailed records for any dealings with the CRA.
Pro tax tips - Importance of proper cryptocurrency record-keeping
One contentious area of dispute between individual taxpayers and the CRA revolves around whether a specific transaction should be classified as a capital gain or business income. Considering the capital gain inclusion rate, where only half of capital gains are taxable, it is typically advantageous for taxpayers to report gains as capital gains rather than business income. Similarly, reporting losses as business losses is also advantageous since they can be fully utilized to reduce overall taxable income. However, only half of capital losses, similar to capital gains, are considered taxable capital losses.
In a dispute concerning the classification of a transaction as a capital gain or business income, the outcome is determined based on the evidence provided. Without proper record-keeping, it becomes significantly more challenging to substantiate the correctness of your interpretation, and the CRA may reject your characterization, resulting in greater tax liabilities. This situation could potentially force taxpayers to pay more in taxes than necessary. Detailed records would have prevented this scenario. As multiple transactions might be required to purchase or sell a crypto coin, the sheer number of transactions can create an appearance of artificially inflated trade volumes. Therefore, maintaining detailed records that indicate each transaction's purpose is vital to accurately represent the nature and intent behind all trades. Another typical tax issue in the crypto context is to determine whether the gains from cryptocurrency transactions should be treated as business income or capital gains. Case law indicates the dominant factor is the intention of the taxpayer, but it’s also reflected based on a variety of factors. Accordingly, it’s highly recommended for a taxpayer to consult with an experienced Canadian crypto tax lawyer for a comprehensive legal memo to confirm the appropriate tax treatment of the gains.
What cryptocurrency records should cryptocurrency traders keep?
For cryptocurrency traders, the CRA has outlined that it is essential to record:
- the date of the transaction
- the cryptocurrency addresses
- the Transaction ID
- receipts for the purchase or transfer of cryptocurrency
- value of the cryptocurrency in Canadian dollars at the time of the transaction
- a description of the transaction
- exchange and wallet records
- accounting and legal costs
- fees incurred to trade the cryptocurrency
- software costs related to managing you tax affairs
What records should cryptocurrency miners keep?
For those who mine cryptocurrency, it is also essential to keep records of:
- receipts for purchasing cryptocurrency mining hardware
- receipts to support your expenses associated with the mining operation
- the mining pool contracts and records
- any other records on the mining activities
- the disposal of cryptocurrency earned through the mining activities
This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions, you should consult a Canadian tax lawyer.