Australian Tax Office decides bitcoins are assets, not currency

It is branded as a digital currency and contains the word "coin" but, according to a new Australian Taxation Office ruling, the bitcoin will be considered property.

The Tax Office released long-awaited guidance on the tax treatment of cryptocurrencies on Wednesday, spurred by their rapid adoption by businesses and consumers alike.

Bitcoins and other cryptocurrencies have presented challenges for tax departments worldwide.
Bitcoins and other cryptocurrencies have presented challenges for tax departments worldwide. Photo: Bloomberg

Bitcoin is a virtual online currency used for direct payment between people and businesses. It is unregulated and operates outside of the financial establishment. People buy bitcoins, Litecoins and others to keep in their digital wallets. Smartphone apps and online accounts allow people to transfer their coins to others in payment for goods and services. 

A bitcoin transaction was akin to a barter arrangement, whether conducted online or in brick-and-mortar shops, and therefore had similar tax consequences, the ATO said.

"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 purposes," it said. "Bitcoin is, however, an asset for capital gains tax purposes."

Jason Williams, president of the Bitcoin Association of Australia, said the guideline was "disappointing" because bitcoins were clearly being used as money and therefore should be taxed that way.


"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.

His company, BitPOS – which provides a Visa-like service to merchants as wide-ranging as pet shops, cafes, bowling clubs and pubs across Australia – is in the process of moving trade offshore.

"For [my clients], there will be no impact," Mr Williams said.

As for consumers, he expects the ruling to hinder the rate of adoption among Australians.

"If I buy $100 worth of bitcoins and the exchange levies the fee of 10 per cent on that, what that means is that that GST is liable on that entire $100 amount, not just that 10 per cent," he said. "It's a lot."

The website lists more than 170 businesses in Australia offering bitcoin payments, with the bulk in NSW and Victoria.

This week, an online start-up called Living Room of Satoshi, which allows consumers to pay B-Pay enabled bills with bitcoins, said it had facilitated $150,000 worth of household bills in the past three months.

"Bitcoin usage in Australia is growing rapidly and our customers tell us they are looking for more ways to spend their bitcoin," co-founder Daniel Alexiuc said. "Paying bills is something we all do, and many are now using bitcoin to do it."

Ron Tucker from the Australian Digital Currency Commerce Association said the guidelines were "frankly impractical" and in contrast with overseas legislative trends.

Britain originally held a similar stance to the ATO when it came to tax rules, he said. It was reversed as soon as it recognised it was not a practical application.

"Saying bitcoin transactions [are] the same as transactions involving the exchange of commodity such as coal or wheat is to ignore the nature of the coin or the currency and for a value," he said.

"Imposing a GST on a transaction where a person seeks to convert Australian dollars to bitcoin will impose a financial burden on every person wanting to be able to transact on bitcoin."

In terms of global daily transactions, bitcoin had surpassed Western Union and was set to take over PayPal, he said.

The Tax Office paper says there will be no income tax or GST implications for those not in business or carrying on an enterprise and they pay for goods or services in bitcoin.

Those who use bitcoins to buy goods and services for personal use, any capital gain or loss from disposal of the bitcoin could be disregarded as a personal use asset – provided the cost of the bitcoin is $10,000 or less.

Individuals who use bitcoin as an investment may be subject to capital gains tax rules when they dispose of it, as they would for shares of similar assets.

Businesses will need to record the value of bitcoin transactions as a part of their ordinary income. They must also charge GST when they supply bitcoin and may be subject to GST when receiving bitcoin in return for goods and services.

Did the ATO get it right? Tell us in the comments.

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