Push to recognise bitcoins as currency

6 August 2015 | Bitcoins and other digital currencies could soon be treated as mainstream currency for GST.

Money, money, money

Digital currencies, such as bitcoin, should be treated as money for the purposes of GST, according to a new recommendation from the Senate Economics References Committee.

Cyber currencies (of which bitcoins are just one) have a value and can be bought, sold and exchanged, and can essentially be used to make purchases using a bitcoin wallet. However, their value can be volatile as they aren't controlled through a central bank.

If the recommendation is approved, the definition of money in the Goods and Services Tax Act would be amended to include digital currencies.

Not only is the committee's recommendation another nod of recognition for digital currencies, in practical terms it means the costs associated with buying and selling crypto-currencies in Australia would be reduced. 

Want to know more about how bitcoins work? Read our article on cyber currencies.

Currency, or commodity?

Last year the ATO made a ruling that digital currencies be treated as assets, not currency, for taxation purposes. This meant that bitcoins and the like could have attracted the GST twice – once when used as a method of payment and also when bought and sold as a commodity.

As with all applicable purchases made with cash, the GST is applied to purchases that have been paid for with digital currencies. This will remain unchanged. However, unlike cash or foreign currencies, digital currencies have also been attracting GST whenever they are bought or sold on an exchange. For example, if $100 worth of bitcoins were bought or sold, the 10% GST was applied to the transaction because it was treated as a commodity.

Adam Poulton is the president of the Bitcoin Association of Australia, a nonprofit association advocating the standardisation, protection, and promotion of cryptocurrencies in the region. Poulton welcomed the recommendation and told CHOICE he believes it will help proliferate the currency in Australia.

Lessons from the UK

A move by the Australian government to treat digital currencies as money would bring Australia in line with the United Kingdom, which doesn't charge its value-added tax on digital currency exchanges.

As not all countries have yet made a definitive ruling on the tax treatment of bitcoins, "this ruling puts Australia at the head of the pack," Mr Poulton said.

In their submission to the committee, Professor Miranda Stewart and Mr Joel Emery from the Tax and Transfer Policy Institute at the Australian National University argued that the current GST treatment of cyber currencies "poorly reflects" the way they are actually used. They suggested that exempting cyber currencies from the GST, much like the UK did, "would promote simplicity and neutrality, as it treats sales using digital currency as payment largely the same as sales using traditional cash".

It's hard to know exactly how many people are using bitcoins in Australia, but the Australian finance company Coinjar, which allows people to spend their bitcoins like regular currency via an EFTPOS card, gives a good indication. It recently celebrated the milestone of 50,000 users worldwide.

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