GST and digital currency
Sales and purchases of digital currency are not subject to GST from 1 July 2017. This means that you do not charge GST on your sales of digital currency and similarly, you are not entitled to GST credits for purchases of digital currency.
You do not have any GST consequences in relation to buying or selling digital currency, or using it as a payment, if you are not carrying on a business.
If you are carrying on a business in relation to digital currency, or as part of your existing business, or if you are accepting digital currency as a payment in your business, you need to consider any GST consequences that may arise.
GST view prior to 1 July 2017
Prior to 1 July 2017, sales and purchases of digital currency (such as bitcoin) were subject to GST. This means that if you were registered for GST, you had to pay GST and were entitled to GST credits on any transactions in relation to digital currency. Further, a supply of digital currency in exchange for goods or services was treated as a barter transaction for GST purposes.
For guidance on GST consequences on transactions involving digital currency prior to 1 July 2017, see GSTR 2014/3W: the GST implications of transactions involving bitcoin.
Digital currency is a digital unit of value that has all of the following characteristics:
- fully interchangeable with another unit of the same digital currency for the purpose of its use as payment
- can be provided as payment for any types of purchases
- generally available to the public free of any substantial restrictions
- not denominated in any country's currency
- the value is not derived from or dependent on anything else
- does not give an entitlement or privileges to receive something else.
Some examples of digital currencies include Bitcoin, Ethereum, Litecoin, Dash, Monero, ZCash, Ripple, YbCoin.
What is not digital currency?
Things that are not digital currency for GST purposes include:
- loyalty points provided by retailers that can only be redeemed for products and services specified by that loyalty scheme
- 'currency' used in online multiplayer games, that cannot be used outside the game under which the 'currency' is made available
- 'digital currency' with value based on something else or that gives an entitlement or privileges to something else. For example, a token that is aligned with an Australian or foreign currency, or gives you an entitlement to use software application services.
Example: something that isn't digital currency
Hybrid Co is developing a new digital currency, NewCoin. It is designed to be the exclusive payment method for DistStore distributed file storage network, and it is also intended to be freely used outside this network.
The file storage network will rely on third party participants buying and selling file storage services, and setting their own prices in NewCoin.
Under the terms of issue of the Initial Coin Offering (ICO) arranged by Hybrid Co, all NewCoins contain a permanent right to a specified amount of file storage that will be supplied by Hybrid Co. The purpose is to ensure that any prospective DistStore users have confidence in being able to acquire file storage with their NewCoins, even if there are not enough providers that offer file storage on DistStore at certain time.
NewCoins would not be digital currency for GST purposes as they carry an entitlement to file storage in addition to them being able to be used as payment on DistStore.
End of example
Initial coin offerings (ICOs)
The GST treatment of sales of new currencies or tokens including Initial coin offerings (ICOs) will depend on their particular features. Some ICOs may be designed to be a payment method, while others may offer a share of profits in a product, or provide access to a software application. Depending on the features of the particular token, the GST treatment may be:
- a security including a share or a managed investment scheme, or a derivative - the sale and purchase of these tokens will be a financial supply
- if not a security they may be digital currency based on the factors described above – the sale and purchase of these tokens will be a financial supply
- excluded from the definition of digital currency because the token provides a right or entitlement to goods and services– this may be a taxable supply on which GST is payable.
Digital currency in your business
Registering for GST
You must register for GST if your GST turnover is $75,000 or more. GST turnover does not include input taxed sales. Sales of digital currency are input taxed sales. If you only make sales of digital currency you do not need to register for GST.
However, you may still choose to register for GST. In deciding whether to register you should consider:
- the increased time and cost of record keeping and reporting
- the fact that GST applies to taxable sales and you could claim GST credits for creditable purchases (if you make any)
- whether you can claim GST credits on your reduced credit acquisitions.
If your turnover is less than $75,000 (and you do not choose to register for GST) or if you only make input taxed sales of digital currency, you do not have to do anything in relation to GST. However, normal income tax rules still apply.
Digital currency - claiming GST credits
Sales of digital currency are input taxed sales (financial supplies) which means that you:
- don't pay GST on the sales of digital currency you make
- generally can't claim GST credits for the GST included in the price you pay for anything you purchase to make those sales.
However, you may be able to claim GST credits on purchases you use to make digital currency sales in following situations:
- if you don't exceed the financial acquisitions threshold-in which case you will be entitled to full GST credits for purchases relating to digital currency sales
- if you exceed the financial acquisitions threshold may be able claim reduced GST credits if you make a specific type of purchase.
Reduced GST credits
A reduced credit acquisition is a specified type of purchase for which a reduced GST credit is available when you use the purchase to make financial supplies. For these purchases you can claim 75% of any GST included in the purchase price. The type of purchase must be listed, you cannot claim 75% GST credits on all your costs. Sales and purchases of digital currency are financial supplies.
For digital currency sellers, the costs associated with the following services acquired from another entity will include:
- commission, brokerage costs or arranging services provided by entities that facilitate buying and selling of digital currencies. See Example 1 below
- costs in relation to transaction processing, account maintenance and report generation services.
GST-free sales of digital currency
If, you are making sales of digital currency to non-residents, those sales will be GST-free. As a result, you would not charge any GST on the sales to non-residents but you are entitled to claim full GST credits for costs incurred in relation to making those sales. Normal GST registration rules would apply.
Using digital currency to pay for goods and services
No GST consequences arise when you use digital currency to pay for goods and services in your business. Digital currency is a method of payment and the consequences of using it as payment are the same as the consequences of using money as payment.
Receiving digital currency as payment
If you receive digital currency as payment for your sales of goods and services normal GST rules apply. For example, if you make a taxable sale of goods for which you received digital currency as payment, you are required to remit 1/11th of the payment received for that taxable sale. The amount of GST your remit and report on your activity statement has to be an amount of money in Australian currency.
If you make a taxable sale and the consideration received as payment is expressed in digital currency, in addition to complying with the standard tax invoice requirements under the GST law, you also must:
- include on the document the GST payable in Australian currency; or
- provide 'sufficient information' to the recipient to work out the GST payable on the sale in Australian currency.
Examples of sufficient information include:
- the price expressed in Australian currency
- the value expressed in Australian currency; or
- the GST payable, the price or value expressed in a digital currency and the conversion rate used by the seller, or a statement, to work out the GST payable in Australian currency.
Examples - Digital currency in practice
From 1 July 2017, sales and purchases of digital currency are not subject to GST. This means that you do not charge GST on your sales of digital currency and similarly, you are not entitled to GST credits for purchases of digital currency.
Example 1: digital currency exchange operator
CryptoP2P Pty Ltd (CryptoP2P) operates as an online digital currency exchange in Australia. The exchange allows digital currency buyers and sellers to buy and sell directly with each other. CryptoP2P does not sell or purchase digital currency; it provides the exchange platform that facilitates other entities doing so. CryptoP2P's website looks similar to a securities exchange with a list of buy and sell orders made available to all customers.
CryptoP2P charges a percentage commission to both buyers and sellers for each digital currency transaction. CryptoP2P is making taxable sales of brokerage or facilitation services to its customers. CryptoP2P does not make any sales of digital currency, nor does it acquire digital currency.
Customers of CryptoP2P that are selling and buying digital currency from each other directly are making input taxed sales and acquisitions. As a result, no GST liabilities arise and generally no GST credits can be claimed. However, depending on their individual circumstances, sellers of digital currency may be entitled to a full GST credit (if they are under a financial acquisitions threshold) or a reduced GST credit in relation to the commission charged by the CrytoP2P.
Example 2: consumer selling digital currency to a digital currency trader
Jackson carries on an online business of buying and selling bitcoin (a digital currency) online in Australia. Jackson is registered for GST. Jackson does not provide a trading platform where his customers can buy and sell bitcoin with each other; Jackson's customers must buy from Jackson and sell to him.
Liam, who is not registered for GST, sells 2 bitcoins to Jackson who pays for them in Australian dollars (AUD). Jackson's exchange rate for sellers at the time of the transaction is 1 bitcoin = AUD$8000. Liam receives AUD $16000 for his 2 bitcoins and there are no GST consequences for him. As Liam's sale of bitcoin is not a taxable supply, Jackson cannot claim any GST credits for the purchase of bitcoin.
Example 3: business buying digital currency from a digital currency trader
Following on from Example 2, the following day, Mia, who is registered for GST, wishes to purchase 2 bitcoins from Jackson. Mia plans to use the bitcoin to purchase equipment for her business. Jackson quotes an exchange rate for buyers of 1 bitcoin = AUD$8100. Jackson supplies 2 bitcoins to Mia for a total price of AUD $16200.
Jackson's sale of bitcoin to Mia is an input taxed sale, and as a result Jackson has no GST liability and Mia cannot claim GST credits in relation to the purchase.
When Mia purchases equipment and uses bitcoin as payment for that equipment, Mia will be able to claim GST credits for that purchase provided the equipment is a taxable sale to her. Using bitcoin as payment does not give rise to any GST consequences for Mia.
Example 4: consumer buying digital currency from a digital currency trader
Following on from Example 2, Peta, who is not registered for GST, wants to buy bitcoin from Jackson. Jackson supplies 0.5 bitcoin to Peta and Peta pays in Australian dollars. As Jackson makes an input taxed sale of bitcoin to Peta, Jackson will not have a GST liability in relation to the sale of bitcoin. There are no GST consequences for Peta as she is not registered for GST.
Example 5: a digital currency trader only buys and sells via an overseas digital currency exchange operator
MoreCoins is registered for GST and carries on a business of buying and selling a variety of digital currencies for short term gains. All trades are done via a digital currency exchange located overseas. As MoreCoins is not able to identify the counter party to its trades, they can use the location of the overseas exchange to treat the counter parties as non-residents who are outside of Australia. This means the buying and selling of digital currencies by MoreCoins are GST-free financial supplies. MoreCoins is entitled to GST credits for costs relating to its digital currency trading business.
Example 6: business to business transaction - digital currency exchanged for goods or services
Paul owns a computer shop and is registered for GST. He sells a server for a GST-inclusive price of $7,700 to Ross Co, a building company that is registered for GST.
Paul accepts digital currency as payment and deals both with businesses that are registered for GST and consumers who are not. When Paul accepts digital currency as payment there are no GST consequences for Paul in relation to that payment. However, normal GST consequences arise in relation to the sale Paul made for which digital currency was payment.
When Paul lodges his activity statement, he includes $700 GST for the taxable sale of the server to Ross Co. When Ross Co lodges its activity statement, it claims a GST credit of $700 for the acquisition of the server, the fact that the payment was in digital currency does not impact the GST outcome of the transaction.
Example 7: merchant using an intermediary to accept digital currency in their business
Following on from Example 6, Paul has an agreement with an intermediary for the intermediary to accept digital currency from Paul's customers, which Paul receives as payment for sale of his goods and services. Under the agreement, the intermediary acquires the digital currency from Paul for which the intermediary provides Australian currency.
Under the arrangement, Paul pays commission to the intermediary equal to 1% of the amount paid by his customers. The intermediary agrees to deposit Australian currency (immediately or within one day) into Paul's nominated bank account. There is no agreement between the customer and the intermediary.
Normal GST rules apply to Paul's sale of goods and services to his customers, the payment for which is digital currency.
The sale of digital currency by Paul to the intermediary (through the transfer of digital currency received from the customer) is an input taxed sale on which no GST is payable. The intermediary would not generally be entitled to GST credits for its purchase of digital currency from Paul.
As the commission charged by the intermediary is in relation to an input taxed financial supply ordinarily no GST credit would be available to Paul. However, depending on Paul's circumstances Paul may be entitled to a full GST credit if he does not exceed the financial acquisitions threshold or a reduced GST credit.
Example 8: a business accepts digital currency as payment from a consumer
Lupulin Lounge Inc operates a craft beer bar that accepts bitcoin (a digital currency) as payment. Lachlan, who is not registered for GST, buys a glass of beer priced at $6.60. Lachlan asks to pay in bitcoin, and Lupulin converts the $6.60 to an amount of bitcoin using the current bitcoin exchange rate and accepts Lachlan's bitcoin.
Lupulin has a similar arrangement to that described in Example 7 and has arranged to have any bitcoin received converted straight to Australian dollars by an Australian bitcoin trader.
Lupulin has made a taxable sale of beer on which GST is payable. There are no other GST consequences.
End of example