Canada CARF Income Tax Reporting Measures

The proposal would move crypto-asset reporting into Canada’s federal income tax information-reporting system. The Department of Justice’s Charter Statement describes Part 1 of Bill C-31 as amending the Income Tax Act and Income Tax Regulations to implement CARF, creating new tax reporting obligations for platforms in respect of crypto-asset transactions undertaken by users. It would also adjust the Common Reporting Standard and Digital Platform Operators reporting rules to coordinate with CARF and reduce overlap.

Bill C-31’s first-reading text would insert a new Part XXI titled “Crypto-Asset Reporting Framework.” The proposed interpretation clause states that Part XXI relates to implementation of the CARF standard approved by the OECD Council and is to be read consistently with the framework and its official commentary, unless the context requires otherwise.

The proposed rules apply to a “reporting crypto-asset service provider” that, as a business, provides services effectuating exchange transactions for or on behalf of customers, including as a counterparty, intermediary, or operator of a trading platform. The Canadian nexus rules would cover providers resident in Canada, entities organized under Canadian or provincial law with Canadian filing obligations, partnerships managed from Canada, and entities or individuals carrying on business in Canada.

Budget 2024 had described the intended scope as including crypto exchanges, crypto-asset brokers and dealers, and operators of crypto-asset automated teller machines. Bill C-31 also includes coordination rules where equivalent CARF obligations are completed in a partner jurisdiction, which is relevant for cross-border platform groups.

Under proposed section 298, reporting providers would report user identity and tax-residence information, including name, address, jurisdiction of residence, taxpayer identification number, and date of birth for reportable users. For entities with reportable controlling persons, the bill would require information on the entity and on each relevant controlling person.

Transaction reporting would be organized by user and type of relevant crypto-asset. Reportable data would include aggregate amounts and units for acquisitions and dispositions against fiat currency, crypto-to-crypto acquisitions and dispositions, reportable retail payment transactions, transfers to and from users, and certain transfers to wallet addresses not known to be associated with a virtual asset service provider or financial institution.

The due diligence provisions would require self-certifications to determine tax residence for individual and entity crypto-asset users, with reasonableness checks against information collected under AML/KYC procedures. For preexisting crypto-asset users, Bill C-31’s first-reading text requires completion of due diligence before 2028. Reporting providers would also have to keep records, including self-certifications and documentary evidence, for at least six years after the last relevant calendar year.