The CRA has stated as a result of the legislative change, made in 2021 but effective May 18, 2019, the change-in-use rules would typically apply to the capital properties of cryptocurrency miners.
Prior to this date, the CRA considered miners to be engaged in commercial activity.
Miners were required to remit GST/HST equal to the basic tax content of their properties, which essentially refers to the GST/HST paid on the properties' purchase.
Change in use rules
The change in use rules apply to all types of property. When a property undergoes a change in use, such as transitioning from an income-producing property to a non-income-producing personal-use property, or from personal-use/non-income-producing to income-producing, it triggers a deemed disposition.
The property owner is considered to have disposed of the property and to have immediately reacquired it, with both transactions taking place at fair market value.
How to Determine Fair Market Value (FMV)
To determine the fair market value (FMV) of a property when a change in use occurs, it is recommended that taxpayers obtain a professional evaluation. It's worth noting that there are special rules for determining FMV/new capital cost when a change in use occurs from personal use to income-producing.
Change in use from income-producing property to personal-use
If a property's use changes from income-producing to personal use, a deemed disposition can lead to a capital gain. This gain is calculated by subtracting the property's adjusted cost base from its fair market value at the time of the change in use. It is possible to submit an election to defer capital gain until the property is sold.
Change in use from personal-use to income-producing property
If a property's use changes from personal use (non-income-producing) to income-producing, a deemed disposition can lead to a capital gain. This gain is calculated by subtracting the adjusted cost base of the property from its fair market value at the time of the change in use. The fair market value at the time of the change in use becomes the new adjusted cost base of the income-producing property.
It is possible to submit an election to defer capital gain until the property is sold.
This can be complicated - you may need to consult with a tax professional!
Note that if the property is not located in Canada, and the new adjusted cost base is over $100,000 in Canadian dollars, there will be a requirement to complete form T1135 foreign income verification statement each year in the future while the property is owned. The deemed disposition must be reported on the tax return.
The CRA acknowledged this fact in a brief and somewhat hesitant manner, likely indicating an awareness of potential legal and practical challenges in requiring those who have already filed their return for the 2019 reporting period to refile and report the application of the change-in-use rule.
“Please note that the information provided in this article is of a general nature and may not be accurate for your specific situation. The information is current as of the date of posting and is not intended to provide legal advice. It's always recommended that you consult with a professional accountant and lawyer for personalized guidance and advice."