The ATO is still deciding how Bitcoin will be taxed in the future: Is it a “black economy” issue?

The Australian Tax Office is consulting with experts about how Bitcoin should be taxed in the future, but accounting experts say whatever is decided, the anonymous nature of cryptocurrencies will always throw up challenges.

On Wednesday, Assistant Treasurer Michael Sukkar told a financial services briefing his office is working with the ATO on possible future changes to how cryptocurrencies are classified and treated for tax purposes, reports The Australian.

Sukkar said it is important the treasury and tax office started work to deliver some “pretty good guidance” about how bitcoin and other currencies would be treated into the future, noting some Australians have received big gains in the crypto space over recent months.

At present, the tax office believes Bitcoin is “neither money nor a foreign currency” but an asset that has capital gains tax implications.

Those that hold Bitcoin are advised to keep detailed records of the date of cryptocurrency transactions, the price of the crypto assets at the time, and the other party involved in the purchase or sale.

Businesses who receive Bitcoin for services must record this as part of their income, according to the ATO.

“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 tax office advises.

However, the ATO is currently asking to meet with “key advisers including tax experts and lawyers who have an interest in crypto currencies” to discuss how the current tax laws work in practice.

Lisa Greig, founder of Perigee Advisers, tells SmartCompany the current regulations involve fitting an existing set of tax laws for other assets, like shares, to the cryptocurrency paradigm. However, future changes could include a decision to treat Bitcoin and others crypto assets more like foreign currencies instead.

“That’s the next move that they need to look at, and it feeds into any foreign exchange rules,” she says.

Greig says the tax office actually started developing frameworks for treating cryptocurrencies early on, making decisions as early as 2014 that Bitcoin and the like be treated like an asset.

However, she believes changing the way Bitcoin is taxed will not necessarily recoup significantly more revenue in the near future.

“It’s probably not high on the tax revenue collection side of the ledger for the ATO, but it [discussing Bitcoin] does give them airplay,” she says. 

The bigger tax challenges for the cryptocurrency space are the anonymous nature of it, Greig believes.

“The way they could address it from a strategic point of view at the ATO could be by throwing it in with questions about the ‘black economy’, because it’s so anonymous, it’s different from actually seeing someone’s profits in a bank account,” she says. 

Questions still abound about how Bitcoin and its relatives are treated in the DIY super fund space, for example, because it’s difficult to prove who owns a crypto asset in order to place it in a self-managed super fund, Greig says.

If the ATO wants to charge tax on these holdings, they also need taxpayers to voluntarily declare they own it, she believes.

Any future planning in the area should ask whether the current frameworks of tax law “is okay for the future”.

When contacted by SmartCompany this morning, the ATO said it is continuing to engage in external consultation on the issue.

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