Industry Committee on Feb. 1st, 2023

[Sheldon Bennett]

Thank you.

About two years ago I wrote an article in Accounting Perspectives about the unbankable that is being banked by cryptocurrencies. The idea of that article was to show that developed countries perhaps don't need bitcoin or other cryptocurrencies to live and to function; but when you look at third world countries and non-western nations that don't have the infrastructure, you see there's a huge gap for people to even have the income and the ability to open a bank account, or just get to a bank to get a merchant account and be able to run a business.

What cryptocurrencies do is enable anybody with a mobile phone to be bankable. That's a big part of the technology. A lot of the technology that's being built is technology built here in Canada and in other countries, but if you're going to look at human rights, you're going to look at bankability and at how you can help economies grow. This is a main part of what cryptocurrencies and blockchains can do.

They can bring things that may not be economically viable for business to bring, such as bringing banking to certain individuals in different countries. Blockchain can bring it and can give safety and security in assets that people can own and bank. I think that's an important part.

We've done a lot of work in this in our forensics division. We have done a lot of work around the unbankable and tools they can use. A simple phone that can use SMS can actually transact in bitcoin on various different exchanges and platforms.

[The Chair, Liberal, Joël Lightbound]

I'm giving the floor to Mr. Williams now.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

Despite being a new industry, blockchain is having incredible impact on lots of different industries—finance, medical records, real estate and investing. The possibilities of the industry seem to be endless.

I'm wondering if you can tell the committee where the industry is going. We look at Canada doing the regulations right, ensuring that we look to how we can get banks and the BDC to invest in this industry. Where do we see the industry going? What is the potential of the industry in the next 20 years?

I will start with anyone in the Digital Asset Mining Coalition.

[Sheldon Bennett]

There's an old saying that money goes where it's wanted and stays where it's appreciated. I think that sort of saying could work here as well.

Investment went into crypto companies, small start-ups and large public companies because people were excited about it. They can see it's going somewhere, whether it's us in digital mining or people doing different things with blockchains. It's going to stay and keep growing where it's appreciated.

Canada as a country has to appreciate the technology that's being built, the companies that are being built, the people who are building this. We partner with SFU as well, and the technology we get out of big data in SFU is paramount to our growing our business.

When you ask where it is going to go, well, it's going to grow well in Canada if we understand the rules and if there's co-operation with the government to work with business, both private and public. If not, if we continue to have problems, then the business will go where it's appreciated—somewhere else.

Right now a lot of it's going to the U.S. It doesn't have to be that way. Canada is just as competitive, and in some ways more competitive when you look at our business in crypto mining. We are a much better jurisdiction than the U.S. for many reasons, but it's really about what Canada decides it wants to do with this industry. Does it want to foster it and grow it? Does it appreciate the technology, the jobs, the investment that are coming into it? Does it want to grow that, or does it want to sit back and see what other countries do and how they manage it?

I think this is what's happening right now, and this is why our coalition is here. We really believe Canada can be at the forefront in this industry, just as it is in the forefront in many other industries around the world.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Mr. Buchman, you spoke about international companies and American companies that have been involved in investing in this industry in Canada. Do we know of other countries that are also investing, like China? Do we have any other state actors that seem to be investing in Canada? If Canada isn't, do we have other foreign nationals investing in it?

[Ethan Buchman]

Do you mean investing in Canadian companies and blockchain?

[Ryan Williams, Conservative, Bay of Quinte, ON]

That's right, yes.

If we don't have banks and the government investing in it, are we seeing other nations investing in Canadian companies?

[Ethan Buchman]

Yes, certainly from America, but there's a lot of interest and capital coming from Asia as well. There are a number of firms that span between North America and Asia to bridge that capital divide. There are investing companies on both sides. There's capital from all over the world flowing into this industry and into Canada.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Are some of those other investors getting controlling interest of Canadian companies? Is there a danger of seeing more Canadian companies being bought up by those entities?

[Ethan Buchman]

I think that's definitely a danger, yes.

[Ryan Williams, Conservative, Bay of Quinte, ON]

We talk about tax credits. In regulation, we also talk about tax credits, regulations, or new tax incentives.

I'll go to the coalition. What ideas do you have for investment tax credits, or different incentives that would allow more investment in Canada and in Canadian companies around blockchain?

[Daniel Brock]

I don't know that I would point to specific ideas about incentives. It's more a general perception that this is an industry that's worthy of support.

What we're seeing now is this disjointed transactional treatment of the industry. Our coalition exists because of one of those incidents: The tabling of this change to GST purports to treat digital asset mining like some kind of obscure business that needs to be treated almost like a pariah within our economy. The GST is not an instrument of moral determination; it is an instrument of taxation. If you do something for profit or revenue in Canada, you should be taxable and be able to claim input tax credits. The Department of Finance seems to be going out of its way to come up with an obscure solution to what it perceives to be some kind of a problem with the industry.

We are at an important time. We've talked about the possibility of having a larger meeting of industry in Ottawa and getting the associations together. There are some associations. The coalition exists because there wasn't an association that was specifically advancing the interests of digital asset mining in Canada, so we have this coalition. Those things are starting to happen now.

If this one specific tax policy is allowed to stand and be implemented.... The companies in the coalition are all being courted by Oregon, Texas, upstate New York and Arizona to bring their operations there. This is becoming a highly competitive environment.

Canada has all sorts of natural benefits. We have clean power, the rule of law, a cold climate and talented people to fill those jobs, yet we don't seem to be able to get out of our own way to allow these businesses to flourish. There probably are a suite of specific policies that could be developed to promote the industry.

It starts with government believing that it's an industry that needs to be supported. As others have said on the panel, that requires education, and a bit of seeing the industry differently by looking past the headlines and avoiding the lazy opinion-making that the chair mentioned earlier. That's happening all too often in the industry here in Canada.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Williams.

I have the honour of going again. I'll follow the same line of questioning that Mr. Williams started.

How much tax revenue and how many jobs are represented by digital asset mining in Canada?

[Daniel Brock]

It would be guesstimates.

The larger companies are investing hundreds of millions of dollars in infrastructure. They're generating profits, which they're paying taxes on. They're paying other forms of taxes as well. They're generating economic activity, which itself is generating taxes. A comprehensive study of what contributions the industry is making to the Canadian economy probably needs to happen. It hasn't happened yet. It's something that would certainly clarify things.

I guess I would turn to Geoffrey or Sheldon. Do you want to add anything on this from the jobs, investment, or taxes point of view for the industry?

[Geoffrey Morphy]

I'll go first.

We have seven farms—we call them farms in Quebec—most of which are in smaller towns. The largest one is in Sherbrooke. In Sherbrooke we have three facilities. We have, as I mentioned, over 100 employees working in these facilities. Sherbrooke is the lion's share. We have co-operations with the schools for education, for helping students come out of the schools and internships to get jobs with us. We're really getting into the ecosystem, if you will. They want to come to work for us. We're a coveted job for many millennials, as was mentioned here earlier. If you look at LinkedIn, you'll see there are close to 400 people looking for jobs in our industry across the country right now.

Have we paid taxes? Yes. We pay GST. A year ago when we were profitable—well profitable, because bitcoin prices were up—we paid cash taxes. We have been an active contributor to the economy.

We have contracts with Hydro-Québec. We have contracts with some of the regional municipalities, and when we pay them, those revenues go into the local municipalities and help balance the budget and help operate the grids in those areas, and we have heard anecdotally that it's helped to balance their budgets so that they don't have to raise local property taxes.

We give, and we hear that it benefits the social programs in those areas. We regularly meet with the towns and the mayors and councils and exchange ideas. We've talked to some of the towns about getting involved in some of the CEGEP programs.

We have a lot of involvement throughout, and if we are given support from the banks, from capital, and can move into areas in which we can get good electricity contracts where we can benefit the grid and get benefit from lower-cost power, then we can do a lot more. I'm really excited about that.

[The Chair, Liberal, Joël Lightbound]

I believe, Mr. Brock, that it would be worthwhile to do this work in order to have a better idea not only of the number of direct and indirect jobs it would represent for the entire country, but also the revenue, whether for municipalities, provinces or the federal government. I believe that having an overview would help support your claims.

What do you think the changes being proposed by the Department of Finance would have on the industry?

[Daniel Brock]

They make these businesses uncompetitive globally in Canada. They add a drag. It is effectively a hidden 5% to 15% tax on the businesses themselves that their competitors in other jurisdictions are not going to confront.

I don't want to overstate the impact, but these are companies that are now considering how just the tabling of the legislation has had a chilling effect on investment decisions that these companies have to make to reinvest in their equipment and to grow their businesses. We are already seeing the impact, and this is just by a tabled proposal.

I don't want to overstate what the consequence will be, but in a highly competitive environment where these other jurisdictions are actively recruiting these types of businesses to come and set up in their jurisdictions, our concern is that there could be a serious negative impact on the future growth and sustainability of these businesses in Canada.

[The Chair, Liberal, Joël Lightbound]

Maybe, Madam Rozansky, I'll cede the floor to you, but is there any other industry that's faced with a similar inability to claim credit on taxes paid, to your knowledge?

[Tamara Rozansky]

It would be anyone who is touched by this legislation, and the legislation is incredibly broad. It's referring to crypto assets, which by definition is anyone who has a publicly distributed ledger—I'm paraphrasing—so it goes well beyond bitcoin, well beyond that definition of a virtual payment instrument that I mentioned before. It seems to be far-reaching, and it's not only that: It seems to attract anyone who's using computing resources within the mining activities, so it may be reaching not just to the miners themselves but could even be potentially interpreted to be those who provide inputs into the actual crypto mining.

[The Chair, Liberal, Joël Lightbound]

As it stands, is there any other industry that has the same kinds of rules imposed on it that is not related to cryptocurrency or mining or anything like that?

[Tamara Rozansky]

The closest I would assimilate this to would be the financial services sector. Their legislation is written completely differently from this. It's exempt and not non-commercial activity, which is a new concept. With that, there is a zero-rating provision. Notably, for financial institutions that have some activities with non-residents, that's considered to be zero-rated and not exempt, which means it gives them the opportunity to claim their input tax credits.

I would also add that there is specific legislation for refining in the mining industry of precious metals that equally gives the refiner the ability to claim back the input tax credits, recognizing that this is the most expensive part of the process. After that, it's simply passing along that precious metal.

On Dan's point, just quickly, I would add that the legislation is not only unfair because it limits input tax credits, as we mentioned; it's also unfair to certain provinces because it limits the input tax credits you're paying depending on what province you're in. For instance, in you're in Quebec or if you're in the Atlantic provinces, the 15% rate will discourage mining in those provinces versus provinces with a lower tax rate.

[The Chair, Liberal, Joël Lightbound]

That's interesting.

If you have any additional numbers or information that you want to submit, please do so in writing. We'd be happy to have a look at it.

It's over to Mr. Lemire now for two and a half minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Mr. Morphy, I really liked your presentation on the Quebec ecosystem. I'd like to give you the opportunity to tell us even more about how rich it is.

I'd like to ask you another question. We sometimes hear about the possibility of bitcoin mining in church basements, which has the twofold advantage of bringing our heritage to life and providing a solution to heating problems. The large surface area is ideal for mining.

Is that something you've looked into at Bitfarms?

[Geoffrey Morphy]

I don't want to repeat myself, but one thing we get into in bitcoin mining is the fact that we have residual heat. We have this cool climate, which makes it very efficient and a great place to operate bitcoin mining. You asked where some of the industry is going; it's in the technology to try to reclaim that heat or take advantage of that heat so that you get a double cycle. While we're cooling our machines and operating at high performance, we capture that residual heat and then apply it to industry, such as greenhouses. There's a big initiative in Quebec to grow vegetables and the like there. We could push this heat into greenhouses. In other areas, lumber is very big, as is forestry in Quebec.

There are also drying operations. If it could be done co-operatively, we could push that heat into the drying operations and save them considerable BTUs in natural gas or electricity wherever heat is necessary. We could push it into a district heating and cooling type of system as well. There are lots of additional things. We talked with one city that's looking to set up a fish farm. We could push our heat into their pools of water on an aquaculture basis in the wintertime when they need to warm the water.

There are lots of different applications that, if we were given a chance to talk and think outside the box and be in the right places, we could do more for.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I don't have much time left, but I'd like to say that you'd be welcome in Abitibi-Témiscamingue if that's of interest to you.

Thank you very much.