The ATO recently released guidance about the application of various tax laws to Bitcoin transactions. The guidance was in the form of Draft Taxation Determinations TD 2014/D11 to TD 2014/D14, Draft GST Ruling GSTR 2014/D3, and a guidance paper. Australian Bitcoin businesses and users have been eagerly awaiting the ATO’s decision.
Unfortunately, and despite other interpretations, the ATO has confirmed that it does not consider Bitcoin to be money or a foreign currency. It will treat Bitcoin transactions as barter transactions. This will have an impact on the use of Bitcoins in Australia.
The ATO decision means that goods and services tax (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 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 view will make it very difficult for many Australian Bitcoin businesses to continue to operate, and a large number of these businesses may consider moving operations offshore. In contrast, the position in the United Kingdom (UK) is that Bitcoin is treated as money under the value added tax (VAT) rules, which means 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 imports and exports. 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, if an offshore exchange supplies Bitcoins to an Australian resident, this could be regarded as an importation by the exchange, on which it would be liable to report and pay GST. Obviously, there would be serious difficulty in enforcing these rules.
In a small piece of good news for Bitcoin users, the ATO will disregard capital gains tax (CGT) on a Bitcoin transaction for “personal use” if the cost of the Bitcoins used is less than $10,000.
The key points of the ATO views are as follows.
- Bitcoin is not money and is not a foreign currency.
- Whenever an Australian business sends Bitcoins to another Australian resident (for example, as an 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 by 10% to account for the GST.
- CGT 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 CGT if:
- Bitcoins are used to pay for goods and services for personal use, eg hotel bookings or at a cafÃ© 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 CGT.
- 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 or Bitcoin trading or a Bitcoin exchange, and must be accounted for annually.
- People 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).