Thank you, Chair, and thank you, committee members, for having us here to speak with you today.
My name is Daniel Brock. I'm a partner at the Canadian law firm Fasken. I'm joined by David Robertson from EY Law. Together, we are advising an industry coalition representing more than 23 companies and organizations, all participating in Canada's growing digital asset and blockchain ecosystem. The coalition came together last spring to address a surprise legislative proposal published by the Department of Finance in February 2022, which would increase our members' costs of carrying on business in Canada by 5% to 15%. It is about this proposal as it appears in Bill C-47 that we are here to speak with you today.
In 2017, Canadians might have been using their computers in their basement or garage to mine for Bitcoin. Today, almost all digital asset mining is big business. Companies are using industrial-scale computing to verify and secure transactions that occur on a public blockchain. At today's market rate, the transaction fees and subsidies for adding a single block to the Bitcoin network have a value of almost $200,000.
More than 1,000 blocks get added to the Bitcoin blockchain every week. That's more than $200 million in potential revenue per week for mining pool companies that mine for Bitcoin. There are, however, no major mining pool companies in Canada. All are non-residents to Canada, based primarily in the U.S.A., Asia and Europe.
Canada's role in this emerging industry is not in mining for Bitcoin. Instead, Canadians are the suppliers of high-performance computing power that makes Bitcoin mining possible. Canadian companies take advantage of our cooler climate, our skilled workforce and our excess hydroelectric energy to produce and export clean computing power as a commodity like wheat or precious metals. Canadian computing companies are quickly becoming industry leaders in the supply of the clean computing power that international blockchain mining pool companies want.
Since 2018, this high-performance computing sector has brought in more than $2 billion in revenue to Canada. It has paid millions of dollars in corporate property and payroll taxes. It has invested $1.5 billion in the rural and resource communities in which they operate, and it has created 1,500 well-paying high-tech jobs in these communities. The average age of employees in most of these companies is under 35 years old.
Our main concern with the Finance proposal on crypto-asset mining is that this early success and the potential for future growth in Canada are being put at risk. There are several problems with the proposed GST changes. Let me highlight three.
First, proposed new section 188.2 declares that a Canadian company that (a) allows its computing resources to be used by foreign non-resident mining pool companies for crypto-asset mining, and (b) shares in the proceeds of that mining, is not engaged in commercial activity and will not be able to receive input tax credits. By contrast, all other companies that allow their computing resources to be used by non-residents are entitled to input tax credits, regardless of how that computing power is used or how their fees are calculated.
Second, by denying input tax credits to Canadian computing companies, these new rules make them less competitive in the international marketplace. The GST replaced the old federal sales tax in 1991, specifically to remove Canadian sales taxes as an input cost for Canadian businesses. The GST is to encourage investment both in Canada and in Canadian exports, and to make our goods and services more competitive in international markets. Proposed new section 188.2 does the exact opposite.
Third, the GST proposal creates a competitive disadvantage for computing companies across Canada, depending on the province in which they reside. The GST proposal creates an incentive for companies operating, for example, in Quebec, or in Newfoundland, where the embedded sales tax cost will be 15%, to move their operations to Alberta, where the sales tax cost will be only 5%, or outside of Canada altogether. The GST should never lead to this type of competitive imbalance for businesses within Canada.
What's the solution? We think there is a simple solution that is consistent with good GST policy. We are asking this committee to add a clear and unambiguous exception to the GST proposal. This exception should state that if a Canadian company supplies its computing power to a mining pool operator that is a non-resident of Canada, then proposed subsection 188.2(2) does not apply to them and, instead, ordinary GST rules will apply.
We look forward to your questions.