(Aug. 25, 2014) On August 20, 2014, the Australian Taxation Office (ATO) issued a guidance paper, a Goods and Services Tax (GST) Draft Ruling, and four draft taxation determinations on the taxation treatment of Bitcoin and other virtual currencies. The documents were released in time for taxpayers to take them into account in completing their 2013-2014 income tax returns and are intended to “provide certainty for the Australian community on the ATO’s treatment of crypto-currencies within the current legislative framework.” (Press Release, ATO, ATO Delivers Guidance on Bitcoin (Aug. 20, 2014). The Australian financial year runs from July 1 to June 30; income tax returns are due by October 31.
According to the guidance paper and rulings, Bitcoin transactions will be treated “like barter transactions with similar taxation consequences.” (Id.) The guidance paper states that “[t]he ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.” (Tax Treatment of Crypto-Currencies in Australia – Specifically Bitcoin, ATO (last modified Aug. 20, 2014).)
In general, where Bitcoin is used to purchase goods or services for personal use, there will be no income tax or GST implications, and any capital gain or loss from the disposal of Bitcoin will be disregarded, provided the cost of the Bitcoin is AU$10,000 (about US$9,318) or less. (Id.) Where taxpayers transact with a Bitcoin exchange, the tax consequences will depend on whether they “are acquiring or supplying the bitcoin as part of a business transaction or for investment or otherwise.” (Id.)
Tax Treatment of Bitcoin in Business Transactions
When a business receives Bitcoin as payment for a good or service, it must record the fair market value of the Bitcoin in Australian dollars as part of its ordinary income. The fair market value can be obtained from, for example, a “reputable bitcoin exchange.” (Id.) The business may be charged GST on the Bitcoin that it receives as payment. (Id.)
GST is also payable when a business supplies Bitcoin in the course of its operations, with the amount of GST calculated on the basis of the fair market value of the Bitcoin at the time of the transaction. Businesses that engage in Bitcoin mining must include any income derived from the transfer of the mined Bitcoin to a third party in their assessable income. The guidance paper also notes that there may be capital gains consequences from disposing of Bitcoin in the course of carrying on a business. (Id.)
Where a business uses Bitcoin to purchase business-related items, including trading stock, it will be able to claim a deduction based on the arms-length value of the item acquired. Where an employee receives Bitcoins from an employer as remuneration instead of Australian dollars, the payment is considered a fringe benefit for taxation purposes. (Id.)
Draft Detailed Documents
Detailed information on these topics is provided in the following draft documents issued by the ATO. People are able to submit comments on the drafts until October 3, 2014. The guidance paper will be updated should there be any changes made to the documents.
- Income Tax: Is Bitcoin a ‘Foreign Currency’ for the Purposes of Division 775of the Income Tax Assessment Act 1997 (ITAA 1997)? (Draft Taxation Determination, TD 2014/D11, ATO (Aug. 20, 2014)),
- Income Tax: Is Bitcoin a CGT Asset for the Purposes of Subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? (Draft Taxation Determination, TD 2014/D12, ATO (Aug. 20, 2014)),
Income Tax: Is Bitcoin Trading Stock for the Purposes of Subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? (Draft Taxation Determination, TD 2014/D13, ATO (Aug. 20, 2014)),
- Fringe Benefits Tax: Is the Provision of Bitcoin by an Employer to an Employee in Respect of Their Employment a Property Fringe Benefit for the Purposes of Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986? (Draft Taxation Determination, TD 2014/D14, ATO (Aug. 20, 2014)), and
- Goods and Services Tax: The GST Implications of Transactions Involving Bitcoin (Draft Goods and Services Tax Ruling, GSTR 2014/D3, ATO (Aug. 20, 2014)).
According to media reports, about 1,000 Australian businesses currently accept Bitcoin as payment. Many of these businesses had apparently been hoping that it would be treated as money or foreign currency under tax law, as this would make record-keeping and taxation requirements easier and avoid possible double taxation resulting from the application of GST. (Will Ockenden, Bitcoin: Australia’s Tax Office Announces It Will Not Treat Popular DigitalCurrency as Money, ABC NEWS (Aug. 21, 2014).)
The chair of Australian Digital Currency Commerce Association, Ron Tucker, stated that the guidance from the ATO was disappointing and “very stifling for emerging Australian digital currency businesses and the industry as a whole.” (Id.) He also stated, “[t]his is quite a retrograde step and at odds with the approach taken by other countries.” (Supratim Adhikari, Bitcoin to Cop GST: ATO, AUSTRALIAN (Aug. 21, 2014).) He warned that the draft rulings could potentially send Bitcoin businesses offshore. (Id.)
Similarly, Jason Williams, president of the Bitcoin Association of Australia, said that the guidance was “disappointing” and that Bitcoins were clearly being used as money. He further stated, “[a]pplying double GST to some bitcoin transactions will adversely affect investment in the bitcoin economy and may push bitcoin businesses to relocate to other, more favourable jurisdictions.” (Esther Han, Australian Tax Office Decides Bitcoins Are Assets, Not Currency, SYDNEY MORNING HERALD (Aug. 21, 2014).)