ATO (Australian Taxation Office) just released its guidance on the tax treatment of cryptocurrencies. The set of regulations coincides with Australia's 2013-1014 income tax returns.

It has been a long time coming as Cointelegraph initially reported that the ATO is planning to prepare the guidelines, and then postponing, then offering slightly more clarity, and now here we are.

BTC down under

Bitcoin's popularity in Australia as well as New Zealand is booming, and increasingly more local startups are looking to adopt the cryptocurrency. Currently, there are 190 active companies in Australia using Bitcoin and roughly 40,000 active users.

“The Bitcoin Association of Australia estimates that the Australian share of this market capital is approximately 2%. This means that the market capitalization for Australia is approximately $120 million.”

The newly released set of regulations coincides with Australia's 2013-1014 income tax returns. Michael Hardy, senior assistant commissioner, says:

"The guidance paper and draft tax rulings issued today provide certainty for the Australian community on the ATO's treatment of crypto-currencies within the current legislative framework."

The ATO guidelines

The guidelines are meant to inform individuals that Bitcoin transactions should be treated like exchange transactions with comparable tax consequences, unless they're doing it for business purposes. ATO says that there won't be any income taxes or GTS tax implications for people who are not in business. Any capital loss or gain from the disposal of bitcoins paid by someone to buy services or goods for their own personal use/consumption will be considered a personal use asset, provided that the price of a bitcoin doesn't exceed AUD$10,000.

Those using Bitcoin for business purposes may be susceptible to capital gain tax regulations when they dispose bitcoins, as they would with share assets.  The set of rules demands companies to record the value of their transactions by Bitcoin as part of their everyday income. ATO additionally mentions that businesses using Bitcoin may have to deal with tax consequences if they use the cryptocurrency to pay employees. Michael Hardy encourages everyone to thoroughly read the guidelines, mentioning:

"People involved in buying or selling Bitcoin or other crypto-currencies — whether individuals or businesses — are encouraged to read our guidance. If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us".

The guidance paper offers a detailed outline of the tax treatment for transactions linked to cryptocurrencies, particularly Bitcoin.   

  • Using Bitcoin for personal use - There won't be any GTS or income tax implications for people using Bitcoin for personal transactions. If the user doesn't own a company and just wants to pay for services and goods in Bitcoin, he will not be susceptible to any kind of tax returns. However, the purchases must not exceed AUD$10,000.
  • Using Bitcoin for business - those who want to use Bitcoin for business and trade it for services and goods will have to record the value of the purchases in Australian dollars, and mention it as part of their income. The process is similar to receiving non-cash consideration under a barter transaction. When a business receives bitcoins in exchange for services and goods, it may be susceptible to GTS charges on those bitcoins.
  • Using Bitcoin for services and goods - businesses looking to buy business items with Bitcoin are entitled to a deduction derived from the value of those specific items. GTS will be calculated after the general market value of the services and goods. This will be equal to a fair market valuation of Bitcoin at the time the transaction took place.
  • Capital gains - ATO mentions that there may be capital gain tax consequences when companies will disposal of bitcoins. Yet, any capital gain will be reduced by the amount included in that company's quantifiable income as regular income.
  • Using Bitcoin to pay for salaries - when employees have a working contract with a company, and they choose to be paid in bitcoins rather than Australian dollars, the payment is considered as fringe benefits, which means the employer will be susceptible to provisions of the Fringe Benefits Tax Assessment Act.
  • Mining Bitcoin - income derived from mining bitcoins as a business will be included in that company's assessable income. During the mining process, any expenses incurred would receive a deduction. Loss during the mining process may lead to non-commercial loss provisions.

Expert commentary

Daniel Krawisz:

"I don't know the tax implications of Bitcoin being money or not in Australia. However, as long as the regulation stays light, it's best not to worry too much about it. Just keep growing the bitcoin network and black market in particular, and soon it won't matter much what a tax office's opinion is. So I think we'll see eventually that the countries with the more onerous regulations will have to start imitating the ones with the lighter regulations in order to keep up with them. Right now Bitcoin is a small industry so some jurisdictions think they can have their way with it without consequences. That will not always be the case."

Ronald Tucker (Chairman, Australian Digital Currency Commerce Association):

“This is the beginning, rather than the end of discussions on this issue and the ADCCA looks forward to a continuing dialogue with the ATO on how to create a taxation regime that ensures the emerging digital currency industry can thrive and prosper in Australia.

“On the positive front the ATO has confirmed that Bitcoin is a legitimate asset for CGT purposes, and is not some digital fancy. This also means that consumers can confidently purchase goods or services with Bitcoins for personal consumption, with no adverse tax implications up to the value of $10,000 [AUD].

“Any goods or services sold in Australia would of course as expected still attract GST just like a transaction conducted in Australian dollars. The use of Bitcoin to pay for goods or services is no different than Australian dollars in this respect, other than of course the convenience provided by digital currency.

“The ATO’s paper has unfortunately taken the position to treat the supply of Bitcoins the same way as an exchange of a commodity; something that would involve the costly and impractical imposition of GST on the supply of Bitcoins.

“Bitcoin by its very nature is used as a currency and a store of value and we believe it should be treated by the ATO in the same way as other financial inputs such as foreign exchange.

“It is notable that other jurisdictions with similar tax systems to Australia, such as the United Kingdom, have rejected the view taken by the ATO’s guidance paper, with the purchase of bitcoins not attracting UK VAT.

“The digital currency industry in Australia is a hotbed of innovation and entrepreneurship and has the potential to make the country a regional, if not global leader in financial services. This potential however could easily be undermined by an uncompetitive and unworkable tax regime that sends the industry offshore to other countries such as Singapore and Hong Kong, where of course Australian GST does not apply.

“Australia already punches well above its weight in financial services and we are confident the ATO will work proactively to create a tax regime which creates jobs and revenue for the national economy.”

Fran Strajnar (Director, Founder of bravenewcoin.com, Bitcoinsouth Organizer):

"Firstly, this move by the ATO Legitimizes Bitcoin in Australia. It was great to see so many representatives from the ATO and various Financial Crimes units show up to Cryptocon.net conference in Sydney last month. From the intelligent questions asked it was clear that the Australian Government was approaching this coherently and that comprehensive guidelines were coming. I am pleased at their decision not to enforce GST or capital gains tax on personal use. The need for record keeping is finally apparent and we are exited to be releasing portfolio and tax management tools in a couple of months through Bravenewcoin.com

Lastly I have to express my satisfaction with these announcements because it could have easily been something far more monstrous like the New York Bit-License. I don't think these announcements out of Australia will curb innovation in the Bitcoin space like the proposed NY one's will. Melbourne in particular is a hot-bed of innovation within the Bitcoin space and I expect these regulation guidelines to be a relief to many business owners."

Pantelis Roussakis (Co-Founder, Bitcoin Association Australia):

"[This] represents  an ill conceived interpretation, the natural consequence of which, will be to to kill an innovative and emerging industry before it gets off the ground.  In one foul swoop they have made doing business in Bitcoin too hard for small business to contemplate in this country"With the preferred option of classifying bitcoin as ‘money’ they have instead chosen to muddy the waters with references to barter, commodities and capital gains. Each one of these areas are already ambiguous enough and fraught with misinterpretation particularly by small business.

"Originally there was some cautious optimism amongst the community when the ATO sought advice from a wide range of participants, but in some strange back backflip they have taken a completely illogical and uncomplimentary position. Industry leaders have already formed a lobby group to put pressure on the ATO to reconsider its position, though it feels like it's going to be a long and expensive process.

"It [has] put a stake through the heart of those motivated individuals who have already heavily invested in tech infrastructure like ATMs and merchant services development. Its created a palpable air of despondency that will serve only to drive Australian crypto start-ups overseas in droves. Some who, quite rightly, saw the writing on the wall have already relocated to more friendly environments.

"Essentially if the current guidelines were to be officially adopted in the long term there wont be a Bitcoin industry in Australia to tax!"

 

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