The government and regulators are coming to grips with Bitcoin in Australia. The Australian Senate’s Economics References Committee released a report in August 2015 which effectively summaries the current regulatory framework. The Report also contains a number of recommendations which may inform the Government and regulators as to the future direction in the area.
Current regulatory framework
The Australian Taxation Office (ATO) released a suite of draft public rulings on the tax treatment of digital currencies on 20 August 2014. The ATO’s rulings, which were finalised on 17 December 2014, determined the following:
Transacting with bitcoins is akin to a barter arrangement, with similar tax consequences. The ATO’s view is that Bitcoin is neither money nor a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.
The Report sets out a summary of the taxation implication of the ATO’s rulings on digital currencies as follows:
- Capital gains tax (CGT)—Those using digital currency for investment or business purposes may be subject to CGT when they dispose of digital currency, in the same way they would be for the disposal of shares or similar CGT assets; individuals who make personal use of digital currency (for example using digital currency to purchase items to buy a coffee) 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 charged GST when they buy digital currency, as with any other property. Businesses will charge GST when they supply digital currency and be charged GST when they buy digital currency.
- Income Tax—Businesses providing an exchange service, buying and selling digital currency, or mining Bitcoin will pay income tax on the profits. Businesses paid in Bitcoin will include the amount, valued in Australian currency, in assessable business income. Those trading digital currencies for profit, will also be required to include the profits as part of 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.
The Australian government is in the process of preparing a white paper (a paper which embodies a statement of government policy) in relation to taxation in this area which could result in changes.
Financial Regulation and Consumer Protection
The current financial services regulatory regime under the Corporations Act 2001 applies to ‘financial products’.
According to the Report, the view of the Australian Securities and Investments Commission (ASIC) is that digital currencies themselves do not fall within the legal definition of ‘financial product’ under the Corporations Act (or the Australian Securities and Investments Commission Act 2001).
This means that ‘a person is not providing financial services when they operate a digital currency trading platform, provide advice on digital currencies or arrange for others to buy and sell digital currencies’.