The federal government has announced plans on Monday to remove the ‘double tax’ treatment from those dealing in digital currency such as bitcoin.
In its report [PDF] Backing Australian FinTech, the government said it recognises that that the current treatment of digital currency under the Goods and Services Tax (GST) law means that consumers are “double taxed” when using digital currency to buy anything already subject to GST.
“The government is committed to addressing the “double taxation” of digital currencies and will work with the industry on legislative options to reform the law relating to GST as it is applied to digital currencies,” the statement says.
According to the government, blockchain technology — the underlying technology behind Bitcoin — has attracted considerable interest, adding it is currently being applied to a number of areas within the international financial system. The government believes the technology has the potential to revolutionise key services like international transfers between banks, equities clearing, and settlement, and financial contracts.
Currently, the government said there are over 600 digital currencies available, with different protocols for transaction processing and confirmation, as well as different approaches to the growth in the supply of digital currency units.
It said that removing the ‘double taxation’ treatment for GST on digital currencies and applying adequate anti-money laundering and counter-terrorism financing rules may facilitate further developments or use in the future.
According to the government, the frictionless operation of fintech innovations such as blockchain and digital currencies are generating new value streams, not just in financial services but across the economy, with the government saying it recognises Australia’s financial technology sector can play a vital role in aiding the positive transition that is occurring in the country’s economy.
In addition to dealing with the double taxation on bitcoin purchases, the government’s actions to support the fintech industry, announced Monday, include ensuring access to concessional tax treatment for venture capital investments in startup fintech firms, and commissioning the Productivity Commission to outline options to increase data availability and access to facilitate new products and better consumer outcomes.
The government said it will also work with the fintech industry on further reforms to allow for changes to be made to the Crowd Sourced Equity Funding (CSEF) framework it published last year. Suggested changes include allowing all companies, regardless of assets and turnover, to be eligible for Equity Crowdfunding; removing cooling off periods and allowing platforms to use their discretion to cancel an investment for legitimate reasons; and reviewing Australian Market Licence requirements for crowdfunding intermediaries.
It will also consider increasing the assets and turnover threshold used to determine eligibility for equity crowdfunding to AU$25 million, and reduce the cooling off period for investors into crowdsourced equity funded projects to 48 hours.
In August, the Australian Senate Economics References Committee said the GST treatment of digital currencies was the most pressing concern for Australian businesses that are using currencies such as bitcoin, and called for changes to the GST Act to amend the definition of money.
In its report Digital currency-game changer or bit player, the committee took the view that the current ATO treatment of bitcoin as barter for individuals creates a double taxation effect, and results in additional burdens for users. According to the report, bitcoin startup CoinJar said the ATO ruling had made it uncompetitive against non-Australian rivals.
“The committee is of the view that digital currency should be treated as money for the purposes of the goods and services tax,” the report said.
In late 2014, CoinJar moved its headquarters to London in an expansion bid it hoped would allow it to tap into the country’s financial sector. At the time, CoinJar CEO and co-founder Asher Tan said the move to the UK has been more about its growth strategy than avoiding Australia’s taxation system.
Announced on Monday, Tan joins several others including chairman of startup incubator Stone Chalk, director of Westpac Bank, and former CEO of AMP Craig Dunn on the government’s FinTech Advisory Group.
Chaired by Dunn, the advisory board will be exploring increased facilitation of digital advice models, regulation technology, the uptake of blockchain technologies, the tax treatment of digital currencies, the evolution of the Australian crowdfunding framework, data transparency and aggregation, and emerging insurance models.
Earlier this year, the the Australian Securities Exchange (ASX) injected AU$14.9 million into fintech firm Digital Asset, giving them a 5 percent equity interest in the startup, as well as the right to purchase further equity and appoint a director to the board.
“ASX believes that Australia can be a world leader in the development of innovative post-trade solutions,” Elmer Funke Kupper, former ASX managing director and CEO, said at the time.
“Our investment in Digital Asset represents a commitment to sizing the potential of Distributed Ledger Technology to reduce cost, risk, and complexity for ASX’s broad stakeholder base, including issuers, investors, intermediaries, and regulators.”
Digital Asset will be developing blockchain technology to replace or upgrade the ASX’s main trading and post-trade platforms.
The government on Monday said it welcomes the exploration of blockchain technology, saying the technology has the potential to radically simplify the way the Australian market operates end-to-end, with significant benefits to investors, participants, regulators, and government agencies.
Japan was also debating changes to make the virtual currency legal tender in February, with the Liberal Democratic party reportedly planning to propose changes to the legal system which would define virtual currency such as Bitcoin, Dogecoin, and Litecoin as official tender.