The Australian Taxation Office (ATO) recently released a guidance paper in relation to the tax treatment of Bitcoins. For those of you that do not know what a 'Bitcoin' is, a simple explanation is that they are a digital bartering system which allow people to purchase items with them. In this article we provide an overview of the tax implications of using Bitcoins.
The Australian Taxation Office (ATO) recently released a guidance paper in relation to the tax treatment of Bitcoins. Bitcoin is a digital bartering system which allow people to purchase items. Some people view them as a form of electronic currency. As no Government or central bank officially recognises the Bitcoin system, they are not classified as an official currency for taxation purposes.
In the guidance paper 'Tax Treatment of crypto-currencies in Australia – specifically Bitcoins', the ATO takes the view that a Bitcoin is neither money nor foreign currency and as a result should not be a financial supply for goods and services tax (GST). However, Bitcoins will be treated as an asset for capital gains tax (CGT) purposes.
We note that the guidance paper is not an official tax ruling. However, the ATO has released some draft tax determinations in relation to some of the matters below.
Based on the ATO's interpretation of a Bitcoin, this means the following tax treatments will apply:
1. Using Bitcoin to pay for personal transactions
- There will be no income tax or GST implications if you are not in the business or carrying on an enterprise and you simply pay for goods or services using Bitcoin.
- Any capital gain or loss from the disposal of the Bitcoin will be disregarded (as a personal use asset) provided the cost of the Bitcoin is $10,000 or less.
2. Receiving Bitcoin as payment for goods or services
- The market value (in Australian dollars) will need to be recorded in your assessable income and any GST which would ordinarily be payable on the transaction if money were received is still payable. This is similar treatment to a barter transaction.
3. Using Bitcoin to pay for goods or services
- This is the same as if you were receiving Bitcoins; the market value of the Bitcoins will be allowed as a deduction to your business (subject to normal deduction eligibility criteria) and you will be able to claim a credit for GST on the value of the goods or services purchased provided you hold a valid tax invoice.
4. Paying salary or wages in Bitcoins
- If the employee has a valid salary sacrifice arrangement, the payment of Bitcoins as remuneration for the employee's wages is a fringe benefit and will be subject to fringe benefits tax.
5. Disposing of Bitcoins acquired for investment
- If you have acquired Bitcoins as an investment, the sale of the Bitcoin will be subject to the CGT provisions and there will potentially be capital gains tax payable on any gains made, as there is with the sale of shares.
6. Disposing of Bitcoins acquired for the purpose of resale
- If you acquired Bitcoins for the purpose of resale at a profit, then they will be considered trading stock and the normal trading stock provisions will apply.
As Bitcoins are quite new and unknown, the ATO will be keeping an eye on any transactions which are occurring and recommend the following records be kept:
- The date of the transactions;
- The value in Australian dollars (which can be taken from a reputable online exchange);
- What the transaction was for; and
- Who the other party was (even if it's just their Bitcoin address)
If you would like more information on Bitcoins and their tax treatment, speak with your usual HC adviser or contact Jamie Towers on 07 3218 3900.