Bitcoin: GST changes looming

The Senate Economics References Committee recommended in a report last week that digital currency should be treated as money for GST purposes, and as a result transactions involving the exchange of digital currency would not be subject to GST.

The report also examined anti-money laundering and counter terrorism financing regimes, creating a unified regulatory treatment for digital currencies and further taxation issues, and could spark major change in Australia’s digital currency industry.

Driven by the reaction to the ATO’s suite of rulings on the tax treatment on digital currencies the Committee examined “how best to define digital currency within the regulatory frameworks in order to support innovation and the needs of the growing Australian digital currency industry.”

The ATO’s rulings issued in December 2014 determined that:

  • Transacting with digital currency was akin to a barter arrangement,
  • Digital currency is neither money nor a foreign currency and the supply of digital currency is not a financial supply for GST purpose,
  • GST will be charged when (1) individuals or businesses buy digital currency and (2) businesses supply digital currency,
  • Businesses providing an exchange service, buying and selling digital currency, or mining Bitcoin will pay income tax on the profits, and
  • Remuneration paid in digital currency will be subject to Fringe Benefits Tax (FBT).

The ATO’s ruling that digital currency is a commodity rather than a currency is similar to guidance provided by relevant authorities in Canada and Singapore. However, it is at odds with the position in the UK and Spain. The ATO stated that its rulings were based on its impartial interpretation of the current law. It had no role in determining whether digital currencies should be treated as money – rather these were decisions for Government.

As observed in the Committee hearings, the digital currency community’s key point of contention was that the ATO’s application of GST to digital currency. The double taxation levied on Australian digital currency transactions effectively rendered the industry uncompetitive compared to both fiat-based competitors and international Bitcoin-based competitors.  For example, following the ATO’s ruling, Coinjar, a Bitcoin trading platform, reincorporated in the UK where digital currency trading is exempt for VAT.

The Committee considered that digital currency transactions should be treated in the same manner as national or foreign currency for the purposes of GST. 

Implementing the Committee’s GST recommendation will require amendments to both the legislation and regulations. Further, as it will affect the GST base, any change will require the unanimous support of the State and Territory Governments and the passage of legislation through the Federal Parliament. While this should not be controversial, it will delay the progress of amendments coming into force.

GST is only one aspect of the treatment of digital currency, the Committee also recommended that the appropriate income tax and FBT treatment of digital currencies be included in the taxation white paper process.

It appears that the Committee has a rather favourable view of digital currency’s future viability and resilience. The Committee’s report seems to recognise the importance of ensuring that both the tax treatment and regulatory strategies protect consumers while not unduly stifling innovation. Perhaps, if our regulatory framework is amended digital currencies can be brought out of the shadows and into the mainstream.

Post script

On 21 August, the State and Commonwealth Treasurers met to discuss GST matters. Unfortunately, while they decided to impose GST on all imports there was no mention of digital currencies. NSW has previously stated that the GST base should not be changed on a case by case basis, but rather in a broader framework, presumably as part of the Commonwealth Government's overall review of taxation. The next meeting of Treasurers is scheduled for October. However, unless the general position of not amending GST legislation on a piecemeal basis is abandoned, the changes to facilitate digital currencies are likely to be delayed significantly.

 

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Authors

Toby Eggleston

Director

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Andrew Howe

Director

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