The Australian Tax Office has finally released their tax guidance ruling on the how they will treat Bitcoins and all cryptocurrency, which include Litecoin and Dogecoin. The verdict? Bitcoin, and the rest, will be considered property.
Here’s the word from the ATO:
The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.
What it means for Individuals
For individuals worried about personal income tax implications, the news is very good:
Using Bitcoin to pay for personal transactions
Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin). Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.
This is slightly complicated wording, but to break it down, it means that anyone transacting using bitcoin (for example, buying or selling a number of bitcoins) or buying items with bitcoin and doing so with less than the $10,000 threshold, does not need to worry about tax implications.
If selling 1000 BTCs originally purchased for $100 for $100,000, the threshold means that you will need to pay CGT.
However, if you buy a Ferrari with those Bitcoins, there is no additional taxation requirements.
The analogy is a bottle of whiskey. Say you bought a lovely single malt Scotch whisky a number of years ago for $100, and find out today that it is worth $100,000. If you drink that whiskey, you are not liable to pay CGT on the difference of $99,900.
– The $10,000 exemption threshold for transactions means that most people using Bitcoin won’t have to worry at all. Moving bitcoins around generally won’t attract capital gains tax.
– Utilising Bitcoin, as in the Ferrari example, also won’t attract CGT.
What it means for Businesses
The news isn’t as good for Australian businesses that use Bitcoins for transactions. In fact, it’s a disaster, and businesses that deal with Bitcoin sales will likely have to move offshore.
The ATO’s ruling, based on the existing taxations laws, means that GST will be applied to business-to-business transactions.
So, if an Australian business was to sell a product to a consumer for 1 BTC before GST, the business would need to collect 1.1 BTC, and pay the Government 0.1 BTC. If that business was then to go on to convert the BTC into dollars, the business must charge GST. So, you get the equivalent of 1.1 BTC in dollars, but you now owe another 0.1 BTC to the Government.
You’ve just paid 0.2 BTC on a single 1 BTC transaction. In essence, you’ve paid GST twice. And that’s almost certainly the end of businesses transactions for Australian businesses.
Those implications are being hotly contested by business groups.
Jason Williams, president of the Bitcoin Association of Australia, told Fairfax the guideline was “disappointing” because bitcoins were clearly being used as money – meaning Bitcoins “should” be taxed that way, and not as property.
“Applying double GST to some bitcoin transactions will adversely affect investment in the bitcoin economy and may push bitcoin businesses to relocate to other, more favourable jurisdictions,” he said.
Williams, who runs BitPOS – which provides bitcoin point-of-sale services to Australian merchants, who wish to charge Bitcoins from anything from a cup of coffee to a bottle of beer – is in the process of moving trade offshore to avoid charging these additional taxes.
Ron Tucker from the Australian Digital Currency Commerce Association told the ABC the guidelines were “frankly impractical” and in contrast with overseas legislative trends.
“The way they’ve chosen to interpret how it should be applied is unfortunately very stifling for emerging Australian digital currency businesses and the industry as a whole. “It’s essentially a double GST effect. It is adding 10 per cent tax on the entire supply of the Bitcoin.
“So if the Bitcoin is worth $500 today, you’ll be paying 10 per cent tax on that, as well as the GST on the service or commission fees that the Bitcoin companies may charge.”
“You could possibly see Bitcoin driven underground because of the unfair application of this tax treatment.”
The ABC’s Will Ockenden spoke to Michael Hardy, senior assistant commissioner at the Australian Taxation Office. It’s a useful explanation:
It’s likely that the taxation laws on which the ATO ruling were formed will eventually be challenged. The ATO does not make the laws, and the view presented is not law, and is open to be challenged by taxpayers. This may involve objections and could potentially involve litigation proceedings, where a court will have the final say.