After months of deliberation, the Australian Taxation Office (ATO) has ruled that for taxation purposes, Bitcoin is neither money nor foreign currency. The ruling is similar to that of the IRS in the US, with the implications outlined below.
As a general rule, transacted bitcoins need to be evaluated in terms of their fair market value in Australian dollars. This can be determined, for example, by their traded price on a “reputable exchange” at the relevant time of their evaluation.
Investing in and disposing of bitcoins, for non-commercial activities, is subject to capital gains/losses. Also, disposing of bitcoins worth over $10,000 by using them to purchase goods and services may fall under the realm of capital gains.
Business revenue coming in the form of bitcoins is taxable, no worse than barter or vouchers. A business who purchases business items with bitcoins can deduct these expenses from income.
For those operating an exchange service (included are bitcoin ATMs) whereby the operator buys and sells bitcoins, bitcoin purchases are considered a cost and their sale is revenue. Not discussed is the more commonly known form of exchange, whereby the operator facilitates trading between 3rd parties. One would assume that the commissions and fees earned through such a service, even in Bitcoin, are also taxed as income.
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Earnings made by those trading on an exchange in a “profit-making undertaking” are considered assessable income.
Income earned from mining activities is taxable. Costs of mining equipment, energy etc can be deducted.
Goods and Service Tax (GST)
The purchase of goods and services with bitcoins is not subject to GST, as it’s like a barter transaction. Conversely, if bitcoins are sold as goods, the transaction is subject to GST.
If there is a valid salary sacrifice arrangement in place, and bitcoins are paid instead of Australian dollars, it is subject to the provisions of the Fringe Benefits Tax Assessment Act. If not, it is treated as regular income.
The ruling ends by inviting comment of any of the four draft tax determination documents and the one GST Draft Ruling.