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Industry fears Ottawa’s ‘overreach’ will limit access to crypto after 2024 budget
Some industry leaders fear the government will revoke the tax shelter status of cryptocurrency-backed ETFs. (Photo by S3studio/Getty Images) (S3studio via Getty Images)
The 2024 federal budget could make it harder for Canadians to invest in cryptocurrencies and add more barriers to growth and innovation, industry executives say.
A consultation plan buried in a budget annexed document Some fear that the government will remove the tax shelter status of ETFs backed by cryptocurrencies. And executives fear that the Canadian government’s lingering doubts about cryptocurrencies will dominate the implementation of new OECD reporting requirements for transactions.
“One of the issues our sector is having with the budget is the prevailing negative narrative that cryptocurrency represents a risk to the financial security of the middle class,” said Morva Rouhani, executive director of the Canadian Web3 Council, a group which represents many fintech, crypto and blockchain companies. “I think it’s a bit of a stretch, but at the same time I think the government is trying to find different ways to limit people’s access to this ecosystem and limit the incentives for people to invest in it. »
In an interview with Yahoo Finance Canada, Adam O’Brien, CEO of Bitcoin platform Well, was more direct. “The government doesn’t want this to work for consumers and businesses,” he said. “If the business environment isn’t right, businesses won’t stay, and it’s becoming easier and easier to take over a Bitcoin-focused business and move it to another jurisdiction.”
In an emailed statement Friday evening, Finance Department spokesperson Catherine Thériault wrote: “A safe and secure financial system is the cornerstone of our economy. The government also continues to work closely with federal and provincial regulators to assess risks to consumers, national security, fair competition and the stability and integrity of the financial system.”
Qualified investments
The budget annex document states that the government will seek submissions on a number of issues relating to registered schemes, including “whether cryptocurrency-backed assets are appropriate as qualified investments” for such schemes. A decision to exclude cryptocurrency-backed funds from qualified investment status would reduce Canada’s competitiveness in the crypto ecosystem, Rouhani argued. “With the approval of crypto ETFs in the US, we are already seeing a lot of dollars flowing out of Canadian ETFs into the US”
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Disqualifying crypto ETFs from registered schemes would also “get rid of a potentially safer and simpler way for people to invest in crypto and their ability to diversify their investments”, and transfer some of the money to lightly regulated jurisdictions.
Cryptocurrency-backed ETFs make up a small percentage of Canadian funds, but these funds, backed by bitcoin, ethereum or a combination of the two, have billions in assets under management. The largest, Purpose Investments’ Purpose Bitcoin ETF (in multiple series), had more than $2 billion in assets as of Thursday.
Lack of regulatory clarity
The federal budget formalizes the Canada Revenue Agency’s oversight of the implementation of cryptographic reporting standards agreed to by OECD countries in 2022, called the Crypto Asset Reporting Framework (CARF). Canada is one of 48 signatories that have committed to implementing the CARF by 2027.
The goal of CARF is “to try to internationally prevent tax evasion and other illicit activities through the use of cryptocurrencies and assets,” said Katrin Tinn, assistant professor of finance at McGill University, at Yahoo Finance Canada.
The CARF defines what types of crypto assets and transactions must be tracked, the range of data to be collected, and how to determine tax jurisdiction when a transaction occurs.
But CW3’s Rohani says there are concerns about the clarity of national implementation.
“We feel like this ecosystem or crypto assets in general are not a priority for this government,” she said. “At least in terms of engagement with industry on the regulatory framework. About two years ago they launched the digitalization of financial consultations, but it came to nothing.”
The government has not communicated a timeline or targets since that consultation, Rohani said, and its “lack of commitment… is what is currently hampering innovation in this area.”
O’Brien, the CEO of Bitcoin Well, says he has received conflicting letters from Canadian regulators for years. He expects that the implementation of CARF in Canada will intrude on the privacy of a large majority of law-abiding people in order to end tax evasion by a small subset and impose obligations on Canadian businesses based on “outdated” monetary systems.
“If Canada wants this business … it’s going to have to stop applying principles to this brand new monetary system that haven’t worked for decades and decades,” he said. “It feels like we’re working with a government that’s trying to force a YouTube video right into a VHS player.”
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple And Android.