The ATO today delivered guidance on the taxation treatment of Bitcoin and other crypto-currencies in time for people to complete their 2013-14 income tax returns.
“The guidance paper and draft tax rulings issued today provide certainty for the Australian community on the ATO’s treatment of crypto-currencies within the current legislative framework,” said Senior Assistant Commissioner Michael Hardy.
Under the guidance paper and rulings, bitcoin transactions are treated like barter transactions with similar taxation consequences.
Generally, there will be no income tax or GST implications for individuals if they are not in business or carrying on an enterprise and they pay for goods or services in bitcoin.
Where an individual uses bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded as a personal use asset – provided the cost of the bitcoin is $10,000 or less.
Individuals who use bitcoin as an investment may be subject to capital gains tax rules when they dispose of it, as they would for shares of similar assets.
Businesses will need to record the value of bitcoin transactions as a part of their ordinary income. They must also charge GST when they supply bitcoin and may be subject to GST when receiving bitcoin in return for goods and services.
Record-keeping requirements are similar to other transactions. Where there may be a taxation consequence people should keep records of:
a. the date of the transaction
b. the amount in Australian dollars
c. what the transaction was for; and
d. who the other party was (even if it is just the bitcoin address).
There may be fringe benefit tax consequences for businesses using bitcoin to pay employee salaries.
“The ATO has consulted extensively with bitcoin experts, businesses, industry bodies and other external stakeholders to develop this guidance and explain the obligations of bitcoin users.
“People involved in buying or selling bitcoin or other crypto-currencies – whether individuals or businesses – are encouraged to read our guidance. If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us,” said Mr Hardy.
The ATO’s guidance paper, rulings and details on the tax treatment of Bitcoin and other crypto-currencies are available online at ato.gov.au.
Full details below courtesy of the Australian Tax Office:
Tax treatment of crypto-currencies in Australia – specifically bitcoin
Preamble
This guidance paper provides an overview of the tax treatment for transactions associated with crypto-currencies, specifically bitcoin. Where other crypto-currencies have the same characteristics as bitcoin, the information in this guidance paper applies equally to the taxation treatment for other crypto-currencies.
Qualifications
The guidance in this paper is general in nature only. Statements about deductibility assume that the ordinary conditions for a deduction are satisfied. For GST purposes, the paper assumes supplies are connected with Australia, relevant taxpayers are registered or required to be registered and supplies are not GST-free. It is assumed that acquisitions satisfy the creditable purpose requirements.
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If you follow our information and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.
If you feel that our information does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.
Summary
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 (GST) purposes. Bitcoin is, however, an asset for capital gains tax (CGT) purposes.
The records you require in relation to bitcoin transactions are:
a. the date of the transactions
b. the amount in Australian dollars (which can be taken from a reputable online exchange)
c. what the transaction was for, and
d. who the other party was (even if it’s just their Bitcoin address).
Using Bitcoin to pay for personal transactions
Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin). Where you use bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded (as a personal use asset) provided the cost of the bitcoin is $10,000 or less.
Transactions using Bitcoin in business
Receiving bitcoin as payment for goods or services
If you receive bitcoin for goods or services you provide as part of your business, you will need to record the value in Australian dollars as part of your ordinary income. This is the same process as receiving non-cash consideration under a barter transaction. The value in Australian dollars will be the fair market value which can be obtained from a reputable bitcoin exchange, for example.
Find out more
Taxation Ruling No. IT 2668External Link – for more information on barter transactions.
When receiving bitcoin in return for goods and services, a business may be charged GST on that bitcoin. If the supply of the goods and services was a taxable supply, the business will be able to claim input tax credits on the GST charged on the bitcoin they received as payment.
Using bitcoin to pay for goods or services
Where you are carrying on a business and purchase business items (including trading stock) using bitcoin you are entitled to a deduction based on the arm’s length value of the item acquired.
GST is payable on the supply of bitcoin made in the course or furtherance of your enterprise. GST iscalculated on the market value of the goods or services. This is ordinarily equal to the fair market value of the bitcoin at the time of the transaction.
Capital gains
There may also be capital gains tax consequences where you dispose of bitcoin as part of carrying on a business. However, any capital gain is reduced by the amount that is included in your assessable income as ordinary income.
Paying salary or wages in bitcoins
Where an employee has a valid salary sacrifice arrangement with their employer to receive bitcoins as remuneration instead of Australian dollars, the payment of the bitcoins is a fringe benefit and the employer is subject to the provisions of the Fringe Benefits Tax Assessment Act.
Find out more
TR 2001/10External Link – For information on valid salary sacrifice arrangements.
In the absence of a valid salary sacrifice agreement, the remuneration is treated as normal salary or wages and the employer will need to meet their pay as you go obligations as usual.
Mining bitcoin
Where you are in the business of mining bitcoin, any income that you derive from the transfer of the mined bitcoin to a third party would be included in your assessable income. Any expenses incurred in respect to the mining activity would be allowed as a deduction. Losses you make from the mining activity may also be subject to the non-commercial loss provisions.
Find out more
Taxation Ruling TR 2001/14External Link – for information on carrying on a business and non-commercial losses
Your bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.
GST is payable on the supply of bitcoin made in the course or furtherance of your bitcoin mining enterprise. Input tax credits may be available for acquisitions made in carrying on your bitcoin mining enterprise.
Bitcoin exchange transactions
Taxpayers conducting a bitcoin exchange (including bitcoin ATMs)
Where you are carrying on a business of buying and selling bitcoin as an exchange service, the proceeds you derive from the sale of bitcoin are included in assessable income. Any expenses incurred in respect to the exchange service, including the acquisition of bitcoin for sale, are allowed as a deduction. In these circumstances, the bitcoin is trading stock and you are required to bring to account any bitcoin on hand at the end of each income year.
GST is payable on a supply of bitcoin by you in the course or furtherance of your exchange service enterprise. Input tax credits are available for bitcoin acquired if the supply of bitcoin to you is a taxable supply.
Taxpayers transacting with a bitcoin exchange (including bitcoin ATMs)
The tax consequences for transacting with a bitcoin exchange will depend on whether you are acquiring or supplying the bitcoin as part of a business transaction or for investment or otherwise (see the relevant material above and below).
Disposing of bitcoin acquired for investment
If you have acquired bitcoin as an investment, but are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale or be allowed any deductions for any losses made (however, capital gains tax could apply – although see the comments above about personal transactions). However, if your transactions amount to a profit-making undertaking or plan then the profits on disposal of the bitcoin will be assessable income.
There are no GST consequences where the bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.
Comments
There are four draft tax determinations and one GST Draft Ruling. You can provide comment on these documents. Any changes to these documents will also be reflected in updates to this guidance.
TD 2014/D11External Link
Income tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?
TD 2014/D12External Link
Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Income tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
TD 2014/D14External Link
Fringe benefits tax: is the provision of bitcoin by an employer to an employee in respect of their employment a property fringe benefit for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986?
Goods and services tax: the GST implications of transactions involving bitcoin.
MORE TO COME.
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