Publications / Taxation
The Australian Taxation Office (ATO) has today released guidance about the application of Goods and Services Tax (GST), income tax and capital gains tax to Bitcoin transactions. Australian Bitcoin businesses and users have been eagerly awaiting the ATO’s decision and will be aware of the significant impact that this will have on the use of Bitcoin in Australia.
Unfortunately, and despite other interpretations existing, the ATO has confirmed that it does not consider Bitcoin to be money or a foreign currency under the GST Act, and will treat Bitcoin transactions as barter transactions.
Problems for bitcoin businesses and users
This view means that GST will apply twice to some Bitcoin transactions – both to the goods or services being supplied, and to the ‘supply’ of bitcoins used as payment. Bitcoin businesses will also pay GST if they use an Australian exchange to convert Bitcoins into Australian Dollars. Bitcoin exchanges will have to charge GST on the full value of the bitcoins they supply to Australian residents (not just on the commission they make).
The ATO’s view will make it very difficult for many Australian Bitcoin businesses to continue to operate, and a large number of them may consider moving operations offshore, or at least using offshore exchanges to convert bitcoins in Australian dollars. In contrast, the UK position is that Bitcoin is treated as money under the value-added tax (VAT) rules, meaning that VAT applies in the normal way.
There are also a number of issues not fully addressed in the ATO view – in particular the rules about international transactions. If an Australian Bitcoin exchange sells bitcoins to a non-resident, this arguably should be treated as a GST-free export. This is noted but not confirmed by the ATO in GSTR 2014/D3. Similarly, the ATO has not confirmed whether, if an offshore exchange supplies bitcoins to an Australian resident, this would be regarded as an importation or a taxable supply by the exchange, on which it would be required to report and pay GST. Obviously, there would be serious difficulty in enforcing these rules.
In a small piece of good news for individual bitcoin users, the ATO will disregard capital gains tax on a Bitcoin transaction for ‘personal use’ if the cost of the bitcoins used is less than $10,000.
The ATO’s reasoning is set out in a series of draft tax determinations and a draft GST ruling, in addition to the general comments on the ATO website.
Summary of the ATO’s view
- Bitcoin is not money and is not a foreign currency.
- Whenever an Australian business sends bitcoins to another Australian resident (for example, in exchange for Australian dollars or as payment for good or services), it must report and pay GST on the gross value of the bitcoins.
- Australian Bitcoin exchanges will need to increase the price of the bitcoins they sell to Australian residents by 10% to account for the GST.
- Capital Gains Tax applies whenever an Australian resident sends a Bitcoin to another person – but there is an exemption for personal use in some situations.
Bitcoin transactions are exempt from capital gains tax if:
- bitcoins are used to pay for goods or services for personal use – e.g. Expedia hotel bookings, or at a café which accepts bitcoins, and
- the cost of the bitcoins used to pay for the transaction is less than $10,000.
- The capital gain is calculated as the increase in value of the bitcoins between the time they were acquired and the time they were disposed of.
- Bitcoins held for investment (not trading) will be exempt from income tax, but will be subject to capital gains tax.
- Capital gains tax will always apply when bitcoins are sold (as opposed to spent).
- Australians carrying on a business of Bitcoin mining must pay income tax when they sell or transfer bitcoins that they have mined.
- Bitcoins are considered trading stock when held by a person in the business of Bitcoin mining, Bitcoin trading or a Bitcoin exchange, and must be accounted for annually.
Everyone dealing with bitcoins need to keep the following records:
- the date of each transaction
- the amount in Australian dollars at the time of the transaction (which can be taken from a reputable online exchange)
- what the transaction was for, and
- details of the other party (the bitcoin public address is enough).
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.