Australia

Details

  • Service: Tax, Indirect Tax
  • Type: Business and industry issue, Regulatory update
  • Date: 18/08/2014

Tax Insights

KPMG's analysis of tax issues and developments.

Keith Polkinghorne

Keith Polkinghorne
Partner, Tax

+61 7 3233 3157

kpolkinghorn@kpmg.com.au

The identity crisis of Bitcoins: money or something else? 

by Keith Polkinghorne, Indirect Tax Specialist

 

With Australia’s first Bitcoin ATM installed in Sydney’s Pitt Street Mall earlier this year, it signals that more and more Australian individuals, businesses and other entities are jumping on the bandwagon of this international phenomenon. However, the treatment of Bitcoin transactions for goods and services tax (GST) purposes remains unclear, making it risky for entities that accept Bitcoins as payment for goods and services.

Being a form of digital currency, Bitcoins are used in transactions that are processed via a peer-to-peer payment system. How will they interact with the transaction-driven GST?

 

In the core of the GST legislation is the notion of a “taxable supply”. The definition of a taxable supply then expressly excludes the supply of “money”. “Money”, in the GST legislation, includes a list of items, one of which that fits most closely with Bitcoins is arguably “crediting or debiting an account”. However, it is somewhat contentious as to whether the transfer of digital credentials from one Bitcoin wallet to another fits neatly with this definition.

 

Why does the identity of Bitcoins matter?  It matters because if Bitcoins do not fall under the definition of “money”, we can potentially have a somewhat abnormal outcome of having two taxable supplies for one transaction. In turn, this can also lead to some unintended consequences, such as making GST a real cost for businesses.

 

For example, imagine a GST-registered company buying goods or services from a non-registered individual using Bitcoins. If the Bitcoins are not “money”, then the company will have made a taxable supply of Bitcoins and will be liable for GST on 1/11th of the value of the Bitcoins.

 

As we can see, the GST treatment of Bitcoins is still very much unsettled as we await further guidance from the Australian Taxation Office (ATO). It will be interesting to see how this unfolds, and in the meantime businesses on the Bitcoin bandwagon remain at risk of non-compliance.

 

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