Canada is preparing to implement the international Crypto-Asset Reporting Framework (CARF) for tax purposes by 2026, as stated in a supplement to the 2024 annual budget. This puts Canada ahead of the game, as the CARF is expected to be adopted by 47 countries by 2027.
Under the CARF, crypto asset service providers (CASPs) such as cryptocurrency exchanges, brokers and dealers, and automated teller machine operators, will be subject to new reporting requirements. This applies to both individuals and businesses. The supplement mentioned stablecoins, derivatives in the form of a crypto asset, and specific nonfungible tokens as examples of crypto assets.
CASPs will be obligated to report transactions involving crypto assets and fiat currencies, as well as transactions between different crypto assets, to the Canada Revenue Agency (CRA). Additionally, any crypto asset transfers exceeding $50,000 USD, including payment processing, must be reported. The requirements apply to CASPs residing or conducting business in Canada, and it includes transactions made by Canadian residents and nonresidents, regardless of their entity type.
It is important to note that central bank digital currency and digital representations of fiat currencies, such as stablecoins, will not be reported under the CARF. These assets are already accounted for under the amendments to the Organisation for Economic Cooperation and Development (OECD) Common Reporting Standard (CRS), which facilitates the sharing of information among international tax authorities.
Similar to the CRS, the CARF was developed by the OECD and the information collected under it will also be shared internationally. The CARF was introduced during a meeting of G20 finance ministers and central bank governors in October 2022, and 47 countries have pledged to incorporate it into their domestic laws by 2027. The OECD, with 38 member countries primarily in Europe, spearheaded the creation of the CARF to address transactions that bypass traditional financial intermediaries.
In conclusion, Canada is taking proactive steps to implement the CARF for taxation purposes by 2026, aligning with the global trend towards regulating crypto assets. The CARF will impose reporting requirements on CASPs, ensuring transparency in crypto asset transactions and facilitating international cooperation in tax matters.