Bitcoin and other digital currencies will officially be money
The Government proposes to fundamentally change the characterisation of digital currencies for GST purposes.
Historically, the ATO has treated the supply of bitcoin and other digital currencies as a taxable supply of intangibles (see Goods and Services Tax Ruling GSTR 2014/3) rather than equalising digital currencies to money or cash.
This means that when purchasing goods and services with digital currency, a GST registered purchaser incurs GST on the goods and services purchased, and is required to remit GST of 1/11th on the purchase (because the digital currency is not characterised as money).
Ultimately, GST registered purchasers paying with digital currency have been ‘double taxed’ on purchases. This treatment has resulted in a number of practical and competitive issues.
To address this issue, the Government proposes to make digital currencies a form of ‘money’ for GST purposes.
By making digital currencies a form of ‘money’, GST will only be imposed on the supply of goods and services being purchased and not on the exchange of the digital currency itself. This is in accordance with the policy intention of the GST law.
Digital currency is an expanding global industry with the total market capitalisation of all digital currencies tripling to US$51 billion as at 1 January 2017.
The Government initially announced this change in March 2016. BDO considers it is logical and appropriate that the Government will actually make the change from 1 July 2017. This will mean Australian start-ups in this space are on a level playing field both within Australia and internationally, as many foreign countries do not ‘double tax’ digital currencies.