Industry Committee on Feb. 1st, 2023

[The Chair, Liberal, Joël Lightbound]

It's apparently cold there as well.

Mr. Bennett, please go ahead if you'd like to add any comments.

[Sheldon Bennett]

Thank you.

On Mr. Morphy's comments about other economic activity specific to bitcoin mining, there is a Canadian start-up in Vancouver that works with the City of Vancouver and BC Hydro on bitcoin heat that's generated. It's being used in district heating. It's been very successful. It's already demonstrated this in the spirits business, working with manufacturers of different alcohols. It is now doing this in co-operation with BC Hydro, which is a provincial government company, and the City of Vancouver. These are the types of areas in which we're taking one technology and its energy consumption and turning it and using it again for the benefit of people, which is a great thing.

I think that if we stifle the industry with restrictive laws or things like this taxation issue that we're representing here, it will stop the small start-ups that can become great companies and grow into providing great solutions using blockchain energy and the resource constraints that we have in building infrastructure.

There's one more comment that I would like to make before we end. We set up in British Columbia. We are very close to the U.S. border. We sit on the Columbia River. Most of the power that's not consumed in our region is sold down to the U.S. and Washington state. The load that we now take was a load that was lost, unfortunately, to a previous company that was there and was not able to get through the timber issues with the U.S. countervailing duties. The power that we consume now is power that's not being shipped down to the U.S., where most likely it would be in bitcoin mining.

There's a lot of bitcoin mining in Washington state. Our decision to set up in B.C. has brought jobs to an area that was closed down, and it has enabled me to create a software platform company—not just a bitcoin mining company—that has high-paying jobs and is developing great technology.

I really hope that through these meetings, we will have another, larger meeting and take on these challenges, because innovation is here. As I said already, SFU is our big partner in innovation around blockchain. I know universities are very interested in this technology, because their students are very interested in it. My own son is in computer science at SFU, and he is very interested in blockchain and energy efficiency. Everybody is interested in this as well.

We have the ability to take on these challenges and grow this technology for Canada and for the world to see what we can do.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Bennett.

Over to you, Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

I'm convinced by what I've experienced through the Canadian Automotive Partnership Council meetings that we had that the minister really has to take the bull by the horns.

The meetings that we had broke into subgroups. They had follow-up measurables and specific timelines. It was a real business strategy. We did pretty well on a number of different things. It led, in part, to the new international border.

To Mr. Bennett, I'm going to raise that exact point. In Ontario, not only do we shut down feeding the grid with clean energy because it doesn't need it at that moment in time, but we ship it to Ohio and other places under cheap contracts. Have any metrics been done to show how much we're losing out economically, or is it too early for that?

There's a good example. I know people who are not allowed, at certain points, to feed into the Ontario grid because it's not necessary. It's from solar energy. It's basically getting wasted away.

Has anybody done that type of analysis, or is it too early just yet?

[Sheldon Bennett]

I think it's a bit early.

At our location in Christina Lake, which is a small community of about 4,000 people, our local utility is not BC Hydro. It's FortisBC, which is another utility in British Columbia. They were ecstatic to have us come, because it's very difficult for a utility to acquire a new ratepayer and have new load. Unless you can find a forestry factory or some type of forest operations or a mining client or a steel processing facility—Teck Cominco would be one that's in that area—it's very difficult to get new load. Without that new load, the capital cost of running utilities increases, and that goes down to the ratepayers. For us, picking up load that has become vacant and is not used anymore is helping the ratepayers of that community in that area. Bitcoin miners taking load is a good thing.

Just like Mr. Morphy, we get a call from FortisBC saying it's cold in the winter and they're looking at curtailing our load. We have no issue with this. We work with Fortis very closely on this. It's not a problem for us. It's very important to understand that unlike pulp and paper, for example, when you start the pulping process, you don't stop it for eight to 10 hours. If you turn the power off, you lose that whole batch.

Bitcoin miners have the opportunity for revenue every 10 minutes. Every 10 minutes, we may or may not make revenue. From our point of view, if we were to give up two or three hours or a day, we're only giving up a small portion of revenue. In return for that, we're helping to stabilize the grid, we're helping the economy and we're helping people.

I don't think any of the CEOs of public companies would have any issue with that.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Bennett.

Mr. Brock, I think you wanted to add to that.

[Daniel Brock]

I was just going to say that in the Ontario context it's mostly anecdotal, so research needs to be done on this as well.

If you can imagine, for hydro power, Ontario, unlike Quebec or B.C., doesn't have the capacity to store power. It has to shed power and sell it at discounted rates to neighbours who could use it when it's there. Any load in Ontario that's used for digital asset mining is load that's creating value in Ontario, as an alternative to exporting it at sometimes negative prices, so again, it's almost axiomatic.

Work has to be done. I don't want overstate its potential, but the mining companies in our coalition that are operating in Ontario say that when they have those conversations with the local utility officials, they hear, “Oh, this is great. We want more of this.” As you go up the food chain—the decision-making chain—things cool off pretty quickly, and the organizations struggle with making the commitments necessary for the industry to really thrive.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Masse and Mr. Brock.

Mr. Dong, I know you have one more question. Please make it a brief one, because we're—

[Han Dong, Liberal, Don Valley North, ON]

Okay. I'll just ask about the taxation or the ability to claim input taxation. If I purchase a bitcoin, do I have to pay HST on it?

[A voice]

No.

[Han Dong, Liberal, Don Valley North, ON]

No? Okay.

My logic is that when you purchase something or purchase a service and you pay HST on it, there is the input taxation on the shipping or the component that's put into it. An end consumer like me will be paying the same tax twice, which is double taxation. That's why, to limit the embedded tax, the producer in this case would be able to claim the tax back, but as the end consumer of a bitcoin, or when I purchase it as an investment, I don't pay HST.

Wouldn't it make sense that during the making or the farming of this bitcoin.... Doesn't someone have to pay HST for hydro, for equipment or whatnot? Just help me to understand that logic. If we agree with that.... I think your earlier claim was that you would not be able to claim back the HST in the making of the bitcoin. Am I right?

[Tamara Rozansky]

I would contrast that, as I mentioned before, with the mining of precious metals. With the refining, the mining is fully taxable. The refining is why I called it “zero-rated”. You're eligible to claim back those credits, and then, upon sale, not charge the tax on the precious metals. Equally, the printing of our own money here, as I understand, is a taxable activity that is recoverable, and then it goes on to be—

[Han Dong, Liberal, Don Valley North, ON]

The precious metal cannot consumed as the precious metal, so it will be made—

[Daniel Brock]

The precious metal is a physical store of value. Cryptocurrency is a digital virtual store of value, but it's every bit as real.

[Han Dong, Liberal, Don Valley North, ON]

It's a chunk of gold nugget, or something like that.

[Daniel Brock]

That's right.

[Han Dong, Liberal, Don Valley North, ON]

But that gold nugget will be made into something at the end or—

[Daniel Brock]

Two-thirds of the global gold supply goes into bars and ends up as a store of value in a vault somewhere, but one-third of the world's gold supply ends up in jewellery. The gold value of jewellery is probably a small portion of its value. Jewellery is taxable as a work of art or as a product. It has gold in it, but its overall value is typically far in excess of what the gold component would be.

[Han Dong, Liberal, Don Valley North, ON]

It's good that I have this clarification. What you are saying is that the bitcoin should be treated as gold bars—

[Daniel Brock]

They call it “crypto mining”. We think the mining analogy is a good one. It is: Digital mining is what's happening, and this cryptocurrency—bitcoin, in this case—is being created as a result of this process.

[Han Dong, Liberal, Don Valley North, ON]

If we were just talking about bitcoin, I would agree with you, but there are so many different types of cryptocurrencies that in a sense it's unlimited. Gold mines are limited.

[Daniel Brock]

It's best to think of it.... This is computing services.

[Han Dong, Liberal, Don Valley North, ON]

Right.

[Daniel Brock]

It's like providing services to the cloud. Those computing services are taxable. They're taxable on the provision of them, and they're used for all sorts of purposes.

The work of digital asset mining is the providing of computer services. They are high-end, specialized and energy-intensive computer services. Those services are taxable, they should be taxable and the businesses that do them should be able to claim an input tax credit.

Much of the work that's being done to mine is work that is being done by pools. Some of those pools—many of those pools—are outside of the Canadian jurisdiction. Like any service provider, you provide the service, and when you provide the service to someone outside of Canada, that service is zero-rated. It's what makes our Canadian businesses competitive. You're not adding a tax on the service you're providing to a foreign company. The goods, the value-added tax, would be the issue for the jurisdiction—

[Han Dong, Liberal, Don Valley North, ON]

To be clear, you're saying you should be able to claim back the tax paid on inputs in making the bitcoin or the cryptocurrency.