Last year the Australian Taxation Office (ATO) issued guidance on the tax treatment of Bitcoin and other cryptocurrencies. The ATO’s view was that Bitcoin is an asset rather than currency. This means that exchanges of bitcoins for national currencies or other goods attract VAT (which is known in Australia as Goods and Services Tax, GST) and cannot benefit from a VAT exemption. The Bitcoin community was not happy about the position taken by ATO as it placed a tax compliance burden on bitcoin transactions. Imposing a GST on Bitcoin could negatively affect the development of the digital money sector and lead to a migration of Bitcoin businesses to jurisdictions with more favourable tax regimes (where bitcoin transactions are tax exempt).
Some days ago the Australian Senate Economics References Committee presented a comprehensive report “Digital Currency — Game Changer or Bit Player” that summarizes its research into the economic impact of virtual currencies. The purpose of the research was to establish a framework for regulating and taxing virtual currencies in a way that promotes the growth of the industry and at the same time ensures the protection of consumers and stability in the financial services sector.
The 74-page report contains a recommendation that represents a significant shift from the ATO guidelines: it suggests that virtual currency transactions should be treated in the same way as national currency transactions for the purposes of Goods and Services Tax. The Committee recommended that the government consider amending the definition of money in the GST law and include virtual currency in the definition of financial supply. The aim of these amendments would be to avoid levying GST on bitcoin transactions. Further research should also be conducted into whether virtual currency should be treated in the same manner as foreign currencies for the purposes of income tax.
The Committee report seems to follow the view of the majority of countries on taxing virtual currency. Transactions in virtual currency are tax exempt in, for example, Finland, Spain and Switzerland. Last month the Advocate General of the Court of Justice of the European Union observed that, since Bitcoin serves the same purpose as national currencies, virtual currency transactions should be tax free under the provision that exempts “transactions concerning currency, bank notes and coins used as legal tender”. However, there are still countries (Singapore, the United States and Norway) where Bitcoin is denied the currency status and considered commodity. It will be interesting to see whether they will also change their position and declare bitcoin transactions tax free.