(Aug 25, 2014) On August 20, 2014, the Australian Taxation Office (ATO) issued a guidance paper, a Goods and Services Tax (GST) Draft Ruling, and four draft taxation determinations on the taxation treatment of Bitcoin and other virtual currencies. The documents were released in time for taxpayers to take them into account in completing their 2013-2014 income tax returns and are intended to "provide certainty for the Australian community on the ATO's treatment of crypto-currencies within the current legislative framework." (Press Release, ATO, ATO Delivers Guidance on Bitcoin (Aug. 20, 2014). The Australian financial year runs from July 1 to June 30; income tax returns are due by October 31.
According to the guidance paper and rulings, Bitcoin transactions will be treated "like barter transactions with similar taxation consequences." (Id.) The guidance paper states that "[t]he 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 (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes." (Tax Treatment of Crypto-Currencies in Australia – Specifically Bitcoin, ATO (last modified Aug. 20, 2014).)
In general, where Bitcoin is used to purchase goods or services for personal use, there will be no income tax or GST implications, and any capital gain or loss from the disposal of Bitcoin will be disregarded, provided the cost of the Bitcoin is AU$10,000 (about US$9,318) or less. (Id.) Where taxpayers transact with a Bitcoin exchange, the tax consequences will depend on whether they "are acquiring or supplying the bitcoin as part of a business transaction or for investment or otherwise." (Id.)
Tax Treatment of Bitcoin in Business Transactions
When a business receives Bitcoin as payment for a good or service, it must record the fair market value of the Bitcoin in Australian dollars as part of its ordinary income. The fair market value can be obtained from, for example, a "reputable bitcoin exchange." (Id.) The business may be charged GST on the Bitcoin that it receives as payment. (Id.)
GST is also payable when a business supplies Bitcoin in the course of its operations, with the amount of GST calculated on the basis of the fair market value of the Bitcoin at the time of the transaction. Businesses that engage in Bitcoin mining must include any income derived from the transfer of the mined Bitcoin to a third party in their assessable income. The guidance paper also notes that there may be capital gains consequences from disposing of Bitcoin in the course of carrying on a business. (Id.)
Where a business uses Bitcoin to purchase business-related items, including trading stock, it will be able to claim a deduction based on the arms-length value of the item acquired. Where an employee receives Bitcoins from an employer as remuneration instead of Australian dollars, the payment is considered a fringe benefit for taxation purposes. (Id.)
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