Bitcoin: Next step taken in long road to Australia adopting digital currency

After ruling bitcoin as an intangible asset just over a year ago, the Australian Senate Economics References Committee has now come out in support of the position that crypto-currencies should be treated as a regular currency for goods and services tax (GST) purposes. (See the full Senate report here.) Bitcoin: Next step taken in long road to Australia adopting digital currency. The result is contrary to the Tax Office ruling in 2014 that bitcoin was a commodity, “neither money nor a foreign currency,” and was liable for GST as an “intangible asset” as well as other taxes. The ruling was no doubt prompted by the realisation that another potential source of tax revenue was not being tapped.

Taxpayers Australia, in our role as an independent watchdog, was invited to put forward an opinion on this guidance and related issues, and made submissions to the government regarding crypto-currency use and the implications for the tax system. Thankfully these submissions were all taken into account by the Senate Committee, and our positions quoted in the final Senate report.

In our submission (read it here) we put forward our preferred alternative view, namely that bitcoin is a “foreign currency”. Our key contentions were that:

the provisions and application of the Currency Act 1965 do not preclude bitcoin from being “currency” or “foreign currency” for income tax law purposes, andbitcoin is a “currency” under the ordinary meaning of the term.

We also identified two other central issues that arose from the Tax Office’s stance on the tax treatment of bitcoin. One had to do with the generally accepted principle, already operating within existing taxation laws, that legal definitions used for taxation purposes can co-exist with those of the general law but differ to suit the needs of the relevant law. Also that definitions and applications will and must evolve as methodologies and/or technologies change.

An example is this Australian court case, which allowed the use of the word “gas” to encompass newly developed forms of gas, even though the law in question was enacted at a time when there were a much more limited number of substances called “gas”.

Taxpayers Australia, in another joint submission to the government with other accounting bodies, recognised the opportunity to change the Tax Office’s mind to benefit not just our members but all Australian taxpayers. We took the view that bitcoin should indeed be viewed as money and a currency and treated as such.

At the time of the 2014 Tax Office bitcoin ruling, it was warned from several fronts that the new regulation could harm the Australia’s competition in financial services and technology markets, and could put a strain on innovation concerning new payment methods and technology.

Additionally it was warned that GST on bitcoin could push digital currency companies to relocate, and as it has turned out quite a few important emerging companies, such as Australia’s then biggest crypto-currency platform Coinjar, left the country and set up its headquarters in Britain, where all digital currencies are exempt from its consumption tax (value added tax, or VAT).

While it acknowledged the opportunities of digital currencies, the Senate Committee has flagged that more work needs to be done before bitcoin can be properly handled by the Australian Securities and Investments Commission and other regulators.

# [bitcoin], [crypto currency], [gst]