The Australian Taxation Office (ATO) has issued a guidance paper which provides an overview of the tax treatment for transactions associated with virtual or digital currencies, specifically Bitcoin.
The ATO regards transacting with bitcoins as similar to a barter arrangement, with similar tax consequences.
The ATO’s view is that bitcoin is neither money or currency nor a foreign currency for the purposes of Australian tax law, 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.
It has released the following four draft tax determinations and one GST Draft Ruling:
- TD 2014/D11
Income tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)? - TD 2014/D12
Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? - TD 2014/D13
Income tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? - TD 2014/D14
Fringe benefits tax: is the provision of bitcoin by an employer to an employee in respect of their employment a property fringe benefit for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986? - GSTR 2014/D3
Goods and services tax: the GST implications of transactions involving bitcoin.
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 personal transactions 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.
Business transactions
When receiving bitcoin in return for goods and services, a business may be charged GST on that bitcoin. If the supply of the goods and services was a taxable supply, the business will be able to claim input tax credits on the GST charged on the bitcoin they received as payment.
Where you are carrying on a business and purchase business items (including trading stock) using bitcoin you are entitled to a deduction based on the arm’s length value of the item acquired.
There may also be capital gains tax consequences where you dispose of bitcoin as part of carrying on a business.
Where an employee has a valid salary sacrifice arrangement with their employer to receive bitcoins as remuneration instead of Australian dollars, the payment of the bitcoins is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act.
Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income. Any expenses incurred in respect to the mining activity would be allowed as a deduction. Losses you make from the mining activity may also be subject to the non-commercial loss provisions.
Your bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.
Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds you derive from the sale of bitcoin are included in assessable income. Any expenses incurred in respect to the exchange service, including the acquisition of bitcoin for sale, are allowed as a deduction. In these circumstances, the bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.
GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise. Input tax credits are available for bitcoin acquired if the supply of bitcoin to you is a taxable supply.
If you have acquired bitcoin as an investment, but are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or be allowed any deductions for any losses made (however, capital gains tax could apply – although see the comments above about personal transactions). However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income.
There are no GST consequences where the bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.
