Bitcoin and GST – Double Taxation?

KSV 0749
5
Feb

Bitcoin and GST – Double Taxation?

05.02.15

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.

 

WHAT IS BITCOIN?

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.

 

HOW IS IT TAXED?

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.

 

WHAT THIS MEANS FOR 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:

  • The supply of Bitcoin to non-resident entities outside of Australia should be a GST-free supply, and
  • The purchase of Bitcoins from non-resident entities does not classify as a taxable importation, as a Bitcoin is not a tangible good.

 

This fact is likely to discourage Australian consumers from purchasing Bitcoins locally, instead purchasing their Bitcoins from overseas exchanges to avoid the GST consequences.

 

WHAT DOES THE FUTURE HOLD FOR BITCOIN TAXATION IN AUSTRALIA?

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