Senate Economics References Committee recommends GST changes for Australian bitcoin industry

A latest report, entitled "Digital currency - game changer or bit player", by the Senate Economics References Committee has described the current regulatory framework for digital currencies.

It said that according Australian Taxation Office's (ATO) view, "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."

Summarizing the taxation implication of the ATO's rulings on digital currencies, the report made the following points:

• Capital gains tax (CGT): Those using digital currency for investment or business purposes may be charged CGT when they dispose of digital currency; individuals who make personal use of digital currency and where the cost of the Bitcoin was less than AUD$10,000, will have no CGT obligations.
• Goods and Services Tax (GST): Individuals will be subject to GST when they buy digital currency. Businesses will charge GST when (1) they supply digital currency and (1) buy digital currency.
• Income Tax: Businesses offering an exchange service, buying and selling digital currency, or mining Bitcoin, will pay income tax on the profits. Those trading digital currencies for profit will be required to include the profits in their assessable income.
• Fringe Benefits Tax (FBT): Remuneration paid in digital currency will be subject to FBT where the employee has a valid salary sacrifice arrangement, otherwise the usual salary and wage PAYG rules will apply.

Coming to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act), the report said that Australia's AML/CTF regime at present permits limited regulatory supervision of convertible digital currencies. As digital currencies such as Bitcoin are not yet widely accepted, they are yet to form a 'closed loop' economy, and whenever they are exchanged for fiat currencies, or vice versa, the transactions will generally intersect with banking or remittance services which are regulated under the AML/CTF regime.

The report further noted that the cryptocurrency industry's primary concern regarding the ATO's rulings confined mostly to the GST treatment of digital currencies. The Bitcoin Foundation and Bitcoin Association of Australia confirmed that the GST treatment of Bitcoin was their main concern as GST is subject to double taxation issues.

The committee is of the view that digital currency should be treated as money for the purposes of the goods and services tax. As such, the committee recommended that the government consults with the states and territories to consider amending the definition of money in the A New Tax System (Goods and Services Tax) Act 1999 and including digital currency in the definition of financial supply in A New Tax System (Goods and Services Tax) Regulations 1999.

The Committee also recommended that further examination of appropriate income tax and FBT treatment of digital currencies should be included in the taxation white paper process.