2022-0951041C6 CCA class of Crypto-Asset Mining Hardware

Principal Issues: Whether CRA will consider GPU mining rigs and ASIC miners to be included in CCA Class 50.

Position: Possibly.

Author: Dumas, Charles
Section: 1104(2) and Class 50 (1100(1)a)(xxxvi)) of the Regulations

2022 CTF Annual Tax Conference

CRA Roundtable

Question 8 – Capital Cost Allowance and Crypto-asset Mining Hardware

Commercial crypto-asset mining operations often involve the use of several graphics processing units (“GPUs”) or application-specific integrated circuit (“ASIC”) miners to generate computing power (“hash power”). In the context of commercial crypto-asset mining operations, the cost of both GPUs and ASIC miners generally represents a significant portion of the total cost of capital assets relating to the operation.

The hash power generated by this equipment is used by crypto-asset miners in order to solve a cryptographic “puzzle” and hopefully receive crypto-asset rewards in the process. This activity is an integral part of the process of verifying and recording transactions on a blockchain. Although crypto-asset mining equipment can connect directly to a blockchain network through an internet connection, most miners will prefer to connect to “mining pool” servers to increase their likelihood of receiving rewards.

The use of either GPUs or ASIC miners will generally be dependant on the blockchain selected by the crypto-asset miner.

GPU mining rigs

GPUs can be used for a variety of purposes including gaming, professional applications, and crypto-asset mining. In order to connect to a blockchain network or mining pool server, GPUs must generally be linked to other computer components, such as a motherboard, a central processing unit (“CPU”), a USB flash/hard drive, RAM, a power supply, and other components, together forming a “rig”. GPU mining rigs are generally composed of several GPUs. GPUs typically come with preinstalled updatable firmware in order to allow low-level control of the devices. Additional operating software is also installed on the rig’s USB flash/hard drive.

ASIC Miners

ASIC miners, on the other hand, are designed and optimized to perform a single task – mining crypto-assets. ASIC miner components generally include hash boards, a control board, a power supply and other components. ASIC miners also come with preinstalled updatable firmware. Once installed, ASIC miners can be controlled using a separate computer device and can be directed to connect to a mining pool server. Additional software can also be installed on the separate computer device to manage the ASIC miners.

For GPU mining rigs and ASIC miners that are capital property acquired after March 18, 2007, will CRA consider that such hardware qualifies under capital cost allowance (“CCA”) class 50 ?

CRA Response

Although the determination of the proper CCA classification of a particular piece of hardware is a question of fact, we will provide the following general comments.

Schedule II of the Income Tax Regulations (the “Regulations”) provides the various classes for depreciable capital property and the applicable rates of CCA.

Class 50 property is property acquired after March 18, 2007 that is “general-purpose electronic data processing equipment” (“GPEDPE”) and systems software for that equipment, including ancillary data processing equipment, but it does not include property that is principally or is used principally as:

(a) electronic process control or monitor equipment

(b) electronic communications control equipment

(c) systems software for equipment referred to in (a) and (b) or

(d) data handling equipment (other than data handling equipment that is ancillary to GPEDPE).

GPEDPE is defined in subsection 1104(2) of the Regulations as electronic equipment that, in its operation, requires an internally stored computer program that:

(a) is executed by the equipment;

(b) can be altered by the user of the equipment;

(c) instructs the equipment to read and select, alter or store data from an external medium such as a card, disk or tape; and

(d) depends upon the characteristics of the data being processed to determine the sequence of its execution.

In order to fall within class 50, GPU mining rigs and ASIC miners would thus initially have to qualify as GPEDPE or ancillary data processing equipment. Although it is not specifically stated above, it is our understanding that the hardware would typically not be considered as “ancillary data processing equipment” considering its significance in most crypto-asset mining operations.

Examples of GPEDPE are a desktop computer system and a laptop computer. However, based on the decision of the Tax Court of Canada in Funtronix Amusements Ltd. v. Minister of National Revenue 89 D.T.C. 545, the definition of GPEDPE is not limited to those types of assets.

In our view, GPU mining rigs and ASIC miners could meet the conditions required to qualify as GPEDPE.

We are also of the view that GPU mining rigs and ASIC miners would typically not be captured by the exclusions mentioned in paragraphs (a) to (d) of class 50.

As such, although the determination of whether or not specific pieces of hardware can fall within CCA class 50 is a question of fact, it is our view that GPU mining rigs and ASIC miners used in the process of crypto-asset mining could fall within that class when acquired after March 18, 2007.

Charles Dumas

2022-095104

November 29, 2022

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