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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.
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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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:
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.
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.
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 is calculated 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.
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.
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.
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.
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.
Taxation Ruling TR 2001/14External Link – for information on carrying on a business and non-commercial losses
Bitcoin held by a taxpayer carrying on a business of mining and selling bitcoin, will be considered to be trading stock. 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.
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. Bitcoin held by a taxpayer carrying on a bitcoin exchange will be considered to be 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.
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).
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.
On 17 December 2014, the ATO finalised a number of rulings (a GST Public Ruling and several Income Tax Determinations) relating to the application of tax laws for Bitcoin and similar crypto-currencies. All of these rulings have application to tax periods before their date of issue as they discuss the operation of laws that were already operative.
However, the Commissioner will not generally apply compliance resources to tax periods that started before 1 October 2014 for goods and services tax, or 1 July 2014 for other tax issues, for taxpayers that can show they have made a genuine attempt to determine the tax treatment of bitcoin and have then adopted a consistent position regarding the tax treatment of bitcoin in those past tax periods.
TD2014/25External LinkIncome tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)?
TD2014/26External LinkIncome tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
TD2014/27External LinkIncome tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?
TD2014/28External LinkFringe 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?
GSTR2014/3External LinkGoods and services tax: the GST implications of transactions involving bitcoin.
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