Understanding GST/HST on NFT Marketplaces and Individuals

The CRA and CPA Canada recently confirmed that NFT marketplaces and individuals selling NFTs can be subject to GST/HST on ALL of their transactions. This guidance creates a significant financial and administrative burden.

The CRA addressed a question of whether businesses carried on in Canada that buy and sell NFTs with revenue over $30,000 should include GST/HST in all sale proceeds. This concern stems from the nature of NFT marketplaces and blockchain transactions that are traditionally anonymous and region-agnostic. 

In response, the CRA stated that a supply of NFTs is deemed to be made in Canada and generally subject to GST/HST if:

·      the NFT may be used in whole or in part in Canada;

·      the supplier is considered a business carried on in Canada; and 

·   the business is not a small supplier (generally an entity with revenue less than $30,000).

GST/HST may not apply if the supply of the NFTs is exempt from GST/HST or “zero-rated” (subject to GST/HST at a rate of 0%). Certain cryptoassets, defined as virtual payment instruments, are considered exempt from GST/HST. These include Bitcoin and Ethereum. NFTs are not considered exempt by the CRA under this category of assets. However, an NFT may be zero-rated where the supply is made to a non-resident who is not registered for GST/HST purposes at the time the supply is made. 

The complication that arises for NFT marketplaces and individual suppliers carrying on business in Canada is that their users generally favour anonymity. Where the supplier cannot identify the recipient of the supply, their residency status, and their GST/HST registration, the CRA states that GST/HST will apply on the supply of ALL such NFTs. The CRA will assume that all purchasers of NFTs are Canadian without evidence to the contrary.

This CRA commentary creates a significant financial and administrative burden on businesses producing taxable supplies of NFTs in Canada that cannot identify the residency of the purchaser.

Canadian purchasers who cannot identify the supplier of the NFTs will also not be able to claim the GST/HST on the purchase of NFTs. 

If you are an NFT marketplace or an individual operating a business of buying and selling NFTs, your transactions may be subject to GST/HST. Depending on the specifics of your business, there are potential solutions to this issue that our team at Solstice Law can advise on. Feel free to reach out for a free consultation.