Edited version of your written advice

Authorisation Number: 1012746559426

Ruling

Subject: GST and bitcoin

Question 1

In the circumstances described, are your sales of bitcoin taxable supplies?

Answer

Yes.

Question 2

In the circumstances described, are your sales of bitcoin taxable supplies?

Answer

Yes.

Relevant facts and circumstances

You purchase bitcoin on an overseas exchange and sell it on an Australian exchange. You transact more than $75,000 per annum. If GST was not payable you would make a small profit.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 section 9-5

A New Tax System (Goods and Services Tax) Act 1999 section 9-20

A New Tax System (Goods and Services Tax) Act 1999 section 38-190

Reasons for decision

Summary

You are carrying on an enterprise for GST purposes, your supplies, as described are taxable supplies.

Detailed reasoning

GST is payable by you on your taxable supplies.

You make a taxable supply where you satisfy the requirements of section 9-5 of the GST Act, which states:

You make a taxable supply if:

(a) you make the supply for *consideration; and

(b) the supply is made in the course or furtherance of an *enterprise that

you *carry on; and

(c) the supply is *connected with Australia; and

(d) you are *registered, or *required to be registered.

However, the supply is not a *taxable supply to the extent that it is *GST-free

or *input taxed.

(*Denotes a term defined in section 195-1 of the GST Act)

Supply for consideration

The ATO considers that a transfer of bitcoin is a supply for GST purposes. The Goods and Services Tax Ruling GSTR 2014/3 notes that the exclusion from the definition of supply for supplies of money does not apply to bitcoin as bitcoin is not money for the purposes of the GST Act. Further, a supply of bitcoin is not a financial supply nor is it another type of input taxed supply

It follows that transacting in bitcoin in exchange for currency as you do is to make a supply for consideration satisfying the requirement of paragraph 9-5(a) of the GST Act.

Enterprise

Paragraph 9-20(1)(a) of the GST Act provides that enterprise includes an activity or series of activities done in the form of a business.

Paragraph 9-20(1)(b) of the GST Act provides that enterprise includes an adventure or concern in the nature of trade.

Section 195-1 of the GST Act states that carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.

Miscellaneous Taxation Ruling MT 2006/1 provides guidance on the meaning of enterprise for ABN purposes.

Goods and Services Tax Determination GSTD 2006/6 provides that MT 2006/1 can be relied on for GST purposes.

Paragraph 179 of MT 2006/1 states that there is no single test to determine whether a business is being carried on and makes reference to Taxation Ruling TR 97/11 which states at paragraph 12 'whilst each case might turn on its own particular facts, the determination of the question is generally the result of a process of weighing all the relevant indicators'. MT 2006/1 notes that TR 97/11 can be referred to for a fuller discussion on whether a particular activity constitutes the carrying on of a business.

The main indicators of carrying on a business paraphrased from TR 97/11 are:

• a significant commercial activity;

• a purpose and intention of the taxpayer to engage in commercial activity;

• an intention to make a profit from the activity;

• the activity is or will be profitable;

• the recurrent or regular nature of the activity;

• the activity is carried on in a similar manner to that of other businesses in the same or similar trade;

• activity is systematic, organised and carried on in a businesslike manner and records are kept;

• the activities are of a reasonable size and scale;

• a business plan exists;

• commercial sales of product; and

• the entity has relevant knowledge or skill.

In any event you have not taken issue with the bulk of these indicators. In your submission, the only indicator that you have taken issue with is the measure relating to profit or gain as set out in paragraph 9-20(2)(c) of the GST Act:

(2) However, enterprise does not include an activity, or series of activities, done: ….

…

(c) by an individual (other than a trustee of a charitable fund, or of a fund covered by item 2 of the table in section 30-15 of the ITAA 1997 or of a fund that would be covered by that item if it had an ABN), or a *partnership (all or most of the members of which are individuals), without a reasonable expectation of profit or gain; or …

You submit that after the compulsory imposition of GST you can no longer have a reasonable expectation of profit or gain. MT 2006/1 offers guidance on the concept of reasonable expectation of profit or gain for individuals:

382. The reasonable expectation of profit or gain is not limited to an expectation for the current year or to specific years and may cover a number of periods. Profits or gains are unlikely in the short term for some activities, such as forestry, but expected over the long term. However, the period to be covered by the test must be relevant to the nature of the activity undertaken.

383. The phrase 'reasonable expectation of profit or gain' is not defined in the ABN Act. However, the phrase 'reasonable expectation' has been considered in a number of cases.¹²⁵ In News Corporation Ltd v. National Companies and Securities Commission (1984) 57 ALR 550 at 561; (1984) 5 FCR 88 at 101, Woodward J said 'a reasonable expectation of an event requires more than a possibility, risk or chance of the event occurring'.

384. The test is an objective one.¹²⁶ This means that the determination of whether there is a reasonable expectation is not solely based on the subjective view of the individual concerned. It is determined by whether a reasonable person looking at all the circumstances would come to the conclusion that there is a reasonable expectation of profit or gain.

385. The term 'profit or gain' is not defined and consequently it takes its ordinary meaning.¹²⁷ It refers to concepts commonly used in the commercial world and can encompass a 'profit or gain' of an income or capital nature.

386. For the purposes of determining whether, objectively, there is a reasonable expectation of profit or gain, one factor to consider may be that year after year an overall loss has been made. However, it is recognised that particular kinds of enterprises may take longer to become profitable.

Given the test is an objective one rather than a subjective one based on individual circumstances, we consider that a person engaged in the purchase of bitcoin on an overseas exchange and selling it on an Australian exchange would reasonably expect a profit or gain. In the subjective view you state that you actually do make a profit from these very activities.

Notwithstanding the other indicators of enterprise which are not a contested issue in this case, it follows that transacting in bitcoin in exchange for currency as you do is to make supplies in the course or furtherance of an enterprise that you carry on satisfying the requirement of paragraph 9-5(b) of the GST Act.

The argument that the imposition of GST to transactions would make your activity unprofitable, and therefore not an enterprise is considered to be premature given the retrospective approach taken in paragraph 386, above. This view considers losses as something that have already occurred and therefore definable and measurable. Your arguments take a prospective approach, i.e. notional future losses caused by the (later) imposition of a tax should be taken into account.

Your view implies that businesses generally would be unable to adapt to the future imposition of GST and would therefore run at a loss and for this reason be allowed to continue to operate outside the normal business regime. If your view was taken to the extreme, any business operating on a slim margin would be allowed to continue operation outside the GST system or drop out if already in, unfairly competing against businesses within the GST system. GST law has been calibrated in such a way to prevent this happening; notable examples in the statute are the enterprise test and the mandatory application of GST to taxi travel.

Connected with Australia

GSTR 2014/3 deals with the possible GST-free supply of bitcoin under section 38-190 of the GST Act which deals with things 'other than goods or real property'. A supply of anything other than goods or real property is connected with Australia if it satisfies the requirements of subsection 9-25(5) of the GST Act:

(5) A supply of anything other than goods or *real property is connected with Australia if:

(a) the thing is done in Australia; or

(b) the supplier makes the supply through an *enterprise that the supplier *carries on in Australia; or

(c) all of the following apply:

(i) neither paragraph (a) nor (b) applies in respect of the thing;

(ii) the thing is a right or option to acquire another thing;

(iii) the supply of the other thing would be connected with Australia.

You make your supplies through your enterprise that you carry on in Australia therefore satisfying paragraph 9-25(5)(b) of the GST Act.

Registration

You have submitted that you exceed the $75,000 GST registration turnover threshold and are therefore required to be registered.

In conclusion, you are carrying on an enterprise and at first glance making taxable supplies, however section 9-5 of the GST Act excludes GST-free and input taxed supplies from being taxable supplies.

Input taxed supplies

This status will not apply to a supply of bitcoin. GSTR 2014/3 states that bitcoin will not meet the requirements of likely input taxed supplies, i.e. it is not a currency, a derivative nor ATM services as required by subregulation 40-5.09(4A) of the A New Tax System (Goods and Services Tax) Regulations 1999.

GST-free supplies

GSTR 2014/3 notes that the supply of bitcoin from an entity inside Australia to a non-resident outside Australia may be a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act. Item 3 in the same table may also apply to supplies of bitcoin. However it is not considered to apply to your supplies of bitcoin. In your submission you stated that you purchase bitcoin overseas and dispose of it in Australia whereas section 38-190 of the GST deals with supplies that are made to recipients outside Australia.

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