Bitcoin and GST – Double Taxation?
With the growing acceptance of Bitcoin in Australia and around the globe, the ATO released a final ruling in December 2014 regarding the taxation treatment of Bitcoin and other crypto-currencies.
Bitcoin is a digital currency or crypto-currency, in which complex encryption techniques are used to regulate the generation and transfer of units of currency, independently of a central bank. Unlike traditional fiat currency, crypto-currencies are not issued or regulated by the government.
In December 2014 the ATO stated their view that Bitcoin is neither money nor a foreign currency. Consequently transactions involving Bitcoin are considered barter arrangements and entail similar tax treatments.
However, Bitcoin is considered an asset for CGT purposes, and as such businesses will incur CGT consequences when disposing of bitcoin.
The Bitcoin Group has recently called for a repeal of the decision, arguing that the double taxation involving both GST and CGT will hamper growth in the digital currency industry by discouraging local businesses to accept Bitcoins as payment for goods and services.
An important outcome of the ATO’s ruling relates to the taxation outcomes for international transactions:
This fact is likely to discourage Australian consumers from purchasing Bitcoins locally, instead purchasing their Bitcoins from overseas exchanges to avoid the GST consequences.
Similar to the future of Bitcoin itself, it is hard to predict. In October 2014, the Senate issued an inquiry into the regulation and taxation of digital currencies to the Senate Economics References Committee. The final report is due in March 2015. Until then, we will have to wait and see.
Article by Edwina Ring