Australia’s Tax Office has spoken, and it has declared that it will not treat Bitcoin as money or as foreign currency. It has instead opted to treat Bitcoin transactions as barter transactions, in a move that would have far reaching implications on Bitcoin use down under.
Definition of a currency or money in Australia falls under the Currency Act. To summarize, the Australian Currency Act permits transactions relating to money in Australia only to be undertaken using Australian currency or the currency of a foreign state. Under this approach, the Australian legal system, therefore, views currency or money as a medium of exchange that is issued only by the state, something that Bitcoin clearly is not. In addition Australian case law provides a further test in requiring that a medium of exchange ought to be widespread in its use, which the ATO also feels that Bitcoin (at present!) is not.
The decision on how to handle Bitcoin transactions for tax purposes was contained in a ruling numbered GSTR 2014/D3. The ruling is likely to have a mostly negative impact on the development and use of cryptocurrency in Australia.
The role of the GST or the Goods and Services Tax will now come into sharp focus. Under this law, the use of bitcoin will apply twice to some Bitcoin transactions, both to the goods and or services being supplied, and to the use of bitcoins as a method of payment. Bitcoin exchanges and markets will have to charge GST on the full value of the bitcoins they supply to residents of Australia, and not just on commissions.
This approach contrasts sharply with that of the United Kingdom in which Bitcoin is regarded as money for purposes of value added tax or VAT. The advantage with the UK approach in the context of the ATO’s new rules means that one would only be required to pay tax on the goods and services themselves and not on the bitcoins used for the transaction.
There are also other sticky issues that arise from the ATO ruling. For example in the case of an Australian Bitcoin exchange that sells bitcoins to a non-resident, would they be regarded as exports and hence exempt under the GST? Conversely, if an offshore Bitcoin exchange supplies bitcoins to a resident of Australia, would this be treated as an import and hence subject to tax under the GST?
The temptation for the Australian crypto community might be to set up offshore bitcoin businesses so as to beat the tax regime in Australia. One company, CoinJar, has already shifted base to the UK.
The ATO ruling provides for several other situations involving the use of Bitcoin. One that will obviously be good news to users of Bitcoin is the exemption from capital gains tax for transactions that are less than AUS$ 10,000 in value. The capital gains tax is calculated as the increase in value of the bitcoins between the time when they were acquired and at the time they are disposed of. In addition, bitcoins that are held for the purposes of investment and not trade are exempt from income tax, but would then be subject to capital gains tax.
Australian residents who mine bitcoins will be required to pay income tax upon sale or transfer of bitcoins that they have already mined. In the view of the ATO, bitcoins are regarded as trading stock and must be accounted for. Everyone who deals in bitcoins will be required to keep proper records that show the date of each transaction, amount in Australian dollars at the time of the transaction, purpose of the transactions and the details of parties involved in the transaction.
Globally, the law is still evolving on the regulation of Bitcoin. In the US, Congressman Stockman (R-Texas) has already proposed a law, the HR 5777 that proposes a moratorium on the regulation of bitcoin and other cryptocurrency until such a time when bitcoin will have sufficiently matured as a technology. Each jurisdiction will have to decide for itself. What could be urged for each jurisdiction is to provide a flexible legal and taxation regime that would enable the growth and innovation that has come to characterize the cryptocurrency community in general.
Images from Australian Taxation Office and Shutterstock.
Last modified: March 4, 2021 4:42 PM