When the 2016/17 Federal Budget was released the Government stated that they would introduce changes to the GST laws to ensure digital currencies, in particular highlighting Bitcoin, were treated correctly. While there was no definitive answer on what the specific changes will consist of, this was encouraging for the financial tech industry in Australia and its future growth. The current Government has earmarked the financial tech industry as an area of growth and in order to promote and support the industry the current treatment of Bitcoin for GST purposes was highlighted as an area in need of change.
What is Bitcoin?
In simple terms Bitcoin is a digital currency that can be exchanged for other currencies, goods and services. As there is no physical coin or note backing the currency it can only be used in online transactions. With no central repository or governing body for the currency, the legitimacy of transactions and balances are kept in a public ledger known as the blockchain, allowing Bitcoin users to police each other and disregard fraudulent transactions.
At present the ATO recognises crypto-currencies as ‘neither money nor a foreign currency’. This approach differs from that of other countries; for example the IRS treats virtual currency as property for tax purposes ensuring no double taxation occurs, and the UK where digital currency is exempt from value-added tax. This classification has caused issues in certain circumstances; when using Bitcoin as a form of payment there is potential for GST to be charged more than once on transactions (GST on the goods/services provided and GST on the digital currency used to pay for the goods/services).
After recognising the potential for double taxation the Senate economics references committee produced a report focussing on the potential options for regulation of digital currencies. This committee recommended that digital currencies moving forward should be recognised as currencies in order to avoid additional GST being levied on transactions and to remain competitive in a global market. This recommendation highlighted the need to amend the definition of money as it currently stands in the GST Tax Act. As these changes are still ongoing we will update you with any developments.
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