The tax treatment of digital currencies is a challenge for governments around the world, as it is for other aspects of the “disruptive” digital economy.
In October 2014, the Commonwealth Senate Economics Committee launched an inquiry into digital currencies. The Committee released its report last week, with a particular focus on tax.
Last year, the ATO published several rulings outlining how bitcoin and similar cryptocurrencies should be treated under the Australian income tax and general sales tax regimes.
The rulings provided useful clarity on bitcoin’s tax treatment, but the ATO’s approach received widespread criticism.
Bitcoin purportedly functions as money, but the ATO rulings treat bitcoin as a commodity for tax purposes. This disparity creates a number of tax inconsistencies.
The impact is particularly acute under the GST regime, where bitcoin transactions are taxed as barter transactions. Australia’s GST regime applies somewhat clumsily to barter transactions, which may cause double taxation, or at least double tax administration, as we emphasised in our submission.
Why should the law be changed?
Imposing 10% GST on bitcoin transactions increases the price of purchasing bitcoin from Australian vendors, affecting the commercial viability of operating a digital currency business in Australia, as we have highlighted before. Submissions to the inquiry outlined the potential benefits the industry could offer Australia, but many argued the GST treatment stood in the way
Originally appeared at: http://www.iol.co.za/business/news/regulators-cotton-onto-bitcoin-1.1899206