During December 2014, the ATO issued two separate documents pertaining to the tax treatment of crypto-currencies in Australia. The main target in these documents was Bitcoin, as it’s the most prevalent crypto-currency in the marketplace at present.
Throughout this blog, we’ll attempt to demystify the confusion surrounding the tax treatment of these crypto-currencies.
For the purpose of these documents, it is assumed that the business is connected with Australia. Should the supply not be connected to Australia, these documents are not relevant as they wouldn’t be taxable regardless of the outcome.
Goods & Services Tax (GST)
The first key document was GST Ruling 2014/3. This is a public GST ruling explaining the ATO’s GST rules regarding these crypto-currencies. The key outcomes of this ruling are as follows:
Bitcoins are not considered to be supplies of money as they are not considered a form of currency in the eyes of the ATO. Therefore, they are not entitled to the exemption that applies in the GST legislation for supplies of money.
A transfer of bitcoin from one entity to another is considered a ‘supply’ for GST purposes. This means that if the seller is registered for GST and they are supplying to a tax resident of Australia, GST must be charged on the transaction.
Normal GST rules apply in that if you are supplying to a non-resident, no GST is applicable on the transaction.
The ruling itself, including a number of examples can be found here: ATO GSTR2014/3
Around the same time as the above ruling, the ATO issued a Guidance Paper to provide an overview of the tax treatment for crypto-currencies from both a GST & Income Tax perspective.
Sales: If you receive bitcoin for goods or services you provide during your ordinary course of business, the value of these bitcoins need to be recorded in Australian dollars. This will form part of your ordinary income. This is similar to the barter rules. More information on these can be found here: Tax Ruling IT 2668
Purchases: If you use bitcoins to pay for goods or services during your ordinary course of business, a deduction is allowed based on the actual value in Australian dollars of the goods or services acquired.
Investment: If you have acquired bitcoin as an investment, much in the same way as someone would acquire listed shares or bonds etc, you will not be taxed on any gains or losses under ordinary income. Instead, you may be liable for Capital Gains Tax (CGT) on any gains.
Personal Transactions: Should you acquire bitcoin to simply purchase goods or services for personal use, and you aren’t in the business of Bitcoin trading, any gains or losses can be disregarded provided the original cost of the Bitcoin is $10,000 or less.
Further guidance can be found here: https://www.ato.gov.au/General/Gen/Tax-treatment-of-crypto-currencies-in-Australia---specifically-bitcoin/
In order to comply with the ATO’s record-keeping requirements with regard to crypto-currency transactions, the following details are required to be kept:
Date of transactions
Amount in Australian dollars
What the transaction was for
Details of the other party
This is quite a complex tax topic. There are many other forms of crypto-currency transactions as well as many conditions which can affect individual circumstances. If you require further help, or have any questions, don’t hesitate to contact the team at Interactive Accounting.