Edited version of your written advice

Authorisation Number: 1012825852822

Date of advice: 22 June 2015

Ruling

Subject: GST and bitcoin transactions

Questions

1. Do you make a taxable supply or a taxable importation when you transfer bitcoin to the customer under Order Type A?

2. Do you make a taxable supply or a taxable importation when you transfer bitcoin to the customer under Order Type B?

3. Do you make a taxable supply under Division 84 of the GST Act in the bitcoin transaction under Order Type A?

4. Do you make a taxable supply under Division 84 of the GST Act in the bitcoin transaction under Order Type B?

5. Do you make any other taxable supplies under Order Type A?

6. Do you make any other taxable supplies under Order Type B?

Answers

1. Based on the facts provided, you do not make a taxable supply under section 9-5 of the GST Act when you transfer bitcoin to the customer under Order Type A.

Bitcoin is not goods for GST purposes and therefore the provision for taxable importations under Division 13 of the GST Act is not applicable to the bitcoin transaction under Order Type A.

2. Based on the facts provided, you do not make a taxable supply under section 9-5 of the GST Act when you transfer bitcoin to the customer under the Order Type B.

Bitcoin is not goods for GST purposes and therefore the provision for taxable importations under Division 13 of the GST Act is not applicable to the bitcoin transaction under Order Type B.

3. No, based on the facts provided you do not make a taxable supply under Division 84 of the GST Act in the bitcoin transaction under Order Type A.

4. No, based on the facts provided you do not make a taxable supply under Division 84 of the GST Act in the bitcoin transaction under Order Type B.

5. From the facts provided, you only make a taxable supply of agency services to the customer under Order Type A.

6. From the facts provided, you only make a taxable supply of agency services to the customer under Order Type B.

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You operate a website which allows any person to buy bitcoin.

You advised that for the purposes of the ruling, the customer is an Australian resident for tax purposes and is present in Australia at the time of the bitcoin transaction.

The customer can buy bitcoin under two types of order namely: Order Type A and Order Type B as follows:

Order Type A

1. In order to buy bitcoin through the website, the customer can place a Type A order by the following process:

(a) create an account on your website.

(b) view the current bitcoin purchase price you quoted (quoted rate) which is based on an estimate of the current average price across the bitcoin exchanges used by you.

(c) enter the amount of bitcoin they wish to purchase, either in bitcoin or Australian dollars, with the matching part of the other side of the transaction automatically calculated based on the quoted rate, plus a commission charged by you.

(d) agree to the Terms and Conditions and confirm the order.

(e) follow the instructions on the order confirmation page to make payment by either BPay or Poli Payments, or over-the-counter cash deposit into a bank account held by you or your related company.

1. The customer can cancel a Type A order at any time up until the payment is confirmed as received by your financial institution or payment processor. You will refund any payment that you later received for a Type A order which was cancelled provided that the customer has verified their identity and their bank account.

2. As soon as the payment is confirmed by your financial institution or payment processor, your software automatically fulfils the order by sourcing the bitcoin on behalf of the customer and sending it to the customer's bitcoin wallet. The customer can direct you to transfer the bitcoin from their bitcoin wallet to any other bitcoin public address provided that the customer has met the identity verification requirements.

3. In order to source the bitcoin, you place a Type A order for the relevant amount of bitcoin at a Bitcoin Exchange through your account on that exchange, or buy from a bitcoin dealer/broker.

4. For a Type A order, the quoted rate is an estimate only. The actual amount of bitcoin that you will acquire for the customer depends on the best available rate at the time that the customer's payment is confirmed.

Order Type B

1. In order to buy bitcoin through the website, the customer can place a Type B order by the following process:

(a) create an account on your website.

(b) view the current bitcoin purchase price you quoted (quoted rate) which is based on an estimate of the current average price across the bitcoin exchanges used by you.

(c) enter the amount of bitcoin they wish to purchase, either in bitcoin or Australian dollars, with the matching part of the other side of the transaction automatically calculated based on the quoted rate, plus a commission charged by you.

(d) agree to the Terms and confirm the order.

(e) Follow the instructions on the order confirmation page to make payment by either BPay or Poli Payments, or over-the-counter cash deposit into a bank account held by you or your related company.

1. As soon as a Type B order is placed, your software automatically acquires the bitcoin to fulfil the order by sourcing the bitcoin, on behalf of the customer, from a Bitcoin Exchange through your account on that Bitcoin Exchange, or buys from a bitcoin dealer/broker. The bitcoin that you acquire is held in your bitcoin wallet until the payment is confirmed.

2. The customer cannot cancel a Type B order after it is placed. If payment is not made within the specified time, you are entitled to cancel the Type B order and charge the customer an administrative fee.

3. As soon as the payment for a Type B order is confirmed by your financial institution or payment processor, you release the bitcoin to the customer's bitcoin wallet. The customer can direct you to transfer the bitcoin from their bitcoin wallet to any other bitcoin public address provided that the customer has met the identity verification requirements.

4. For a Type B order, the customer is guaranteed to receive the amount of bitcoin specified in the order. You immediately acquire the amount of bitcoin to prevent any exchange rate fluctuation risk.

5. If the price paid to acquire the bitcoin on the customer's behalf is higher than the agreed price, you will bear the cost of this difference. If the price paid to acquire the bitcoin is lower than the agreed price, the customer authorises you to retain the difference.

You have an account with a number of Bitcoin Exchanges, some of which involve you having funds (denominated in US dollar or Australian dollar) on deposit.

You keep an online bitcoin wallet hosted in your secure server for the purposes of receiving bitcoin from the Bitcoin Exchange and then transferring bitcoin to the customer's bitcoin wallet.

You have an agreement with another company to provide you with collection and remittance services under which you will provide the other company's bank account details or its payment services account to your customers. The company will hold the payments made by your customers and remit them electronically, net of fees, to your bank within the agreed time.

The bitcoin transaction is governed by the Terms and Conditions which form a binding legal agreement between you and the customer. We have a received a copy of the Terms and Conditions.

The following key points (from the Terms and Conditions) clarify the contractual relationship between you and the customer in the bitcoin transaction:

(a) The customer directs and authorises you to acquire the relevant amount of bitcoin on behalf of the customer.

(b) The customer appoints you as its agent for the sole purpose of acquiring the bitcoin.

(c) Your authority is limited to acquiring the bitcoin on behalf of the customer.

(d) You have full discretion to choose where and from whom you source the bitcoin.

(e) You do not act as agent for any Bitcoin Exchange or bitcoin dealer/broker.

(f) You must provide a tax invoice to the customer that specifies the amount of bitcoin acquired the amount of commission, GST charged on the commission and the total amount paid by the customer.

(g) You make no representation or warranty to the customer as to whether or not the bitcoin acquired by the customer is a creditable acquisition to the customer.

You only source bitcoin from bitcoin exchanges which are not making a taxable supply of bitcoin - for example, from a non-resident bitcoin exchange operating outside Australia that does not carry on an enterprise in Australia, and the supply of bitcoin is not connected with Australia. If you acquired bitcoin from sources which make taxable supplies and charge GST, then you would not be able to offer competitive rates. If a GST-registered customer wanted to acquire bitcoin for a creditable purpose, it could do so either through another service which charges GST (and then claim an input tax credit), or through a service such as yours, which does not involve a taxable supply by the bitcoin supplier. Both alternatives would result in the same net cost to that customer.

You do not allow the bitcoin to be sent directly to the customer's public address. It would not be practical to ask the bitcoin exchange to update the recipient bitcoin wallet for every single customer transaction, which is why the bitcoin is first sent to your central wallet before being immediately sent on to the customer's wallet

When a customer signs up for an account on your website, the customer will have a wallet maintained by you in your server. The customer has full access and control over the wallet, and is able to send or receive bitcoin with that wallet at any time. There is no minimum balance of bitcoin for a customer's wallet, nor is the customer required to purchase any amount of bitcoin in order to keep their wallet. The customer is free to use its wallet like any other bitcoin wallet, including transferring to and from any other wallet. The wallet is essentially a free wallet service similar to many others available online.

You also buy bitcoin from customers in its own right rather than as an agent. You hold these bitcoin or sell them outside Australia. You do not sell them to other customers

You provided a copy of the Terms of Service under which a customer registers and creates an account with you. The Terms of Service contain the following information:

• You reserve the right to change the buy and/or sell limits on the customer's account.

• You reserve the right to abort a transaction at any time and to return received payments or bitcoin.

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 Division 13

A New Tax System (Goods and Services Tax) Act 1999 Division 84

Reasons for decisions

Questions 1 and 2

Taxable supply

According to GSTR 2014/3 a transfer of bitcoin from one entity to another is a supply for GST purposes and bitcoin is not money for the purposes of the GST Act. Further, a supply of bitcoin is neither a financial supply nor it is another type of input taxed supply.

A supply of bitcoin is a taxable supply under section 9-5 of the GST Act if the other requirements in that section are met, and the supply is not GST-free under Division 38 of the GST Act (for example, as a supply to a non-resident for use outside Australia).

You consider that you are acting as a special agent for the customer in the bitcoin transaction and therefore do not make a taxable supply when you transfer the bitcoin that you have purchased to the customer. Instead, you supply agency services (which are a taxable supply) to the customer; and the consideration for the agency services is the commission paid by the customer to you. You referred to GSTR 2000/37 to come to this view.

We therefore need to consider whether there is an agency relationship in the bitcoin transaction before determining the GST status of the bitcoin transaction.

Are you acting as agent for the customer in the bitcoin transaction?

An agent is a person who is authorised expressly or impliedly, by the principal to act for that principal so as to create legal relations between the principal and third parties. The principal is bound by the acts of an agent as a result of the authority given to the agent. In cases of actual authority, the relationship between a principal and an agent is a consensual one so that no party can claim to be a principal's agent unless both parties consent to the creation of the agency.

When an agent uses his or her authority to act for a principal then any act done on behalf of that principal is an act of the principal.

In regard to special agents, paragraph 17 of GSTR 2000/37 states:

17. Agent can be classified according to the extent of authority conferred by the principal. Special agents have authority to act for some special occasion or purpose that is not within the ordinary course of business or a profession. For example, Mike appoints Graeme as his agent for the purpose of obtaining a motor vehicle. The only authority given to Graeme as an agent is to obtain the motor vehicle.

Paragraph 28 of GSTR 2000/37 discusses the factors that indicate an agency relation.

28. In most cases, any relevant documentation about the business relationship, the description used by the parties and the conduct of the parties establish the existence of an agency relationship. Therefore, the following factors may show that you are an agent under an agency relationship, although no single factor (by itself) is determinative:

• any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party;

• any exercise of the authority that you are given to enter into legal relations with a third party;

• whether you bear any significant commercial risk;

• whether you act in your own name;

• whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party; and

• whether you decide the price of things that you might sell to third parties.

Application of agency principles to you as per facts provided:

Any description of you as an agent, having authority to act for another party, in an agreement (expressed or implied) between you and the other party

In regard to the business use of the term 'agent' paragraphs 30, 32 and 34 of GSTR 2000/37 state:

30. Many entities in commercial transactions are often described as 'agents', 'distributing agents', 'selling agents', marketing agents', sole agent' or 'exclusive agents'. Depending upon the terms of the arrangement the entity has with its suppliers, the entity could be acting as a buyer and a reseller rather than an agent.

32. Consequently, the relationship between the parties is determined by an examination of the particular facts surrounding relevant transactions. However, should there be any doubt about the position of the parties in a transaction, an agreement may contain descriptions that clarify the relationship.

34. A clause in an agreement which states that an agency relationship exists must be considered with all the other terms of the agreement. Such a clause cannot receive effect according to its terms if it contradicts the effect of the agreement as a whole; the parties to an agreement cannot alter the true substance of the relationship by simply giving it a different label (see Potter & Anor v. Customs and Excise Comrs [1985] STC 45). As Gray J stated in Re Porter; Re Transport Workers Union of Australia:

'Although the parties are free, as a matter of law, to choose the nature of the contract which they will make between themselves, their own characterisation of that contract will not be conclusive. A court will always look at all of the terms of the contract, to determine its true essence, and will not be bound by the express choice of the parties as to the label to be attached to it. As Mr Black put it in the present case, the parties cannot create something which has every feature of a rooster, but call it a duck and insist that everybody else recognise it as a duck.'

However, the parties may use such a clause to overcome any ambiguity as to the nature of the relationship.

The customer must agree to the Terms and Conditions in order to buy bitcoin through your website.

Under Clause 4 of the Terms and Conditions, the customer appoints you as its agent for the purpose of acquiring the bitcoin. The term 'agent' is used in the Terms and Conditions; however, this, by itself, is not conclusive to define the relationship between you and customer.

Any exercise of the authority that you are given to enter into legal relations with a third party

You exercise your authority as agent for the customer by acquiring the bitcoin for and on behalf of the customer. The agreement describes how you will acquire the bitcoin under the Order Type A or the Order Type B; that is you will find the best price for the bitcoin.

Whether you bear any significant commercial risk

It is recognised that the nature of bitcoin prices are set in an open market and may move in a short period. Under Order Type A, you acquire an amount of bitcoin equivalent to the Australian dollars paid by the customer. The amount of bitcoin will depend on the best available rate. For Order Type B, the amount of bitcoin that the customer gets for the quoted price is guaranteed. You source the bitcoin immediately to prevent any risk in the exchange rate fluctuation. This is a small risk in practice and is not considered to be a significant commercial risk.

Whether you act in your own name

You acquire the bitcoin through your account in the Bitcoin Exchange in your own name rather than the name of the customer. It is accepted that you would only want to operate a single account at each Bitcoin Exchange, and therefore may not be able to indicate that you are buying on behalf of another entity. However, it does not mean that you are not an agent as you may be acting as an undisclosed agent for the customer.

Whether you are remunerated for your services by way of commissions and whether you are entitled to keep any part of your remuneration secret from another party

You advised that you are remunerated in the form of commission paid by the customer.

Under Order Type A, the amount you pay to acquire the bitcoin is equivalent to the amount paid by the customer (excluding the commission). However, under Order Type B, the amount you pay to acquire the guaranteed amount of bitcoin may vary. If the amount you pay to acquire the bitcoin under Order Type B is less than the agreed price, you retain the difference. In this instance, you are not entirely remunerated by the customer for undertaking this service by way of commission. You may also be remunerated through arbitrage (the difference between the quoted price and the actual cost price of the bitcoin); this does not necessarily diminish claims to agency (see Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Ptd Ltd ACN 087 011 541 [2008] FCA 1591).

Whether you decide the price of things that you might sell to third parties

The customer appoints you as its agent for the sole purpose of acquiring the bitcoin for and on behalf of the customer. This authority does not extend to any selling of bitcoin. However, you set an amount for a bank deposit to be made by the customer before actually buying the bitcoin under the order.

On the basis that the Bitcoin Exchange provides a market price, neither the customer nor you can control or set the price. You setting the average price is attributable to having to set the amount for a bank deposit for the customer, ahead of the actual bitcoin buy transaction. To refund the excess (or not proceed if price is just above the agreed price) may not be practical.

Summary

Based on the above analysis, we consider that the terms of the agreement between you and the customer, the substance of the dealings between the relevant parties and total factual circumstances surrounding the transactions indicate that an agency relationship exists between you and the customer, for the acquisition of bitcoin for the customer.

When you acquire the bitcoin from a Bitcoin Exchange, this act is considered to be an act performed by the customer. As a result, it is the customer, and not you that is making the acquisition of the bitcoin from the Bitcoin Exchange.

Accordingly, you do not make a taxable supply of bitcoin when you transfer the bitcoin to the customer under Order Type A or Order Type B.

Taxable importation

The taxable importation provision under Division 13 of the GST Act relates to goods that are imported into Australia.

Goods and Services Tax Ruling GSTR 2014/3 explains the Commissioner's view on the GST consequences involving the use of bitcoin.

According to GSTR 2014/3 bitcoin is not goods. As such, Division 13 of the GST Act is not applicable to the bitcoin transaction that you conduct.

Questions 3 and 4

Division 84 of the GST Act is about supplies of things other than goods or real property taking place outside Australia. The GST on a supply that is a taxable supply under Division 84 of the GST Act is reverse charged to the recipient of the supply.

Section 84-5 of the GST Act states:

(1) A supply of anything other than goods or *real property that is:

(a) a supply not *connected with Australia; or

(b) a supply connected with Australia because of paragraph 9-25(5(c);

is a taxable supply if:

(c) the *recipient of the supply acquires the thing supplied solely or partly for the purpose of an *enterprise that the recipient *carries on in Australia, but not solely for a *creditable purpose; and

(d) the supply is for *consideration; and

(e) the recipient is *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.

(1) For the purposes of paragraph (1)(e), in determining whether the *recipient is *required to be registered, what would be the *value of such supplies (if they were *taxable supplies) is to be counted towards the recipient's GST turnover.

(2) This section has effect despite section 9-5 (which is about what is a taxable supply).

When you source the bitcoin for a customer from a Bitcoin Exchange located and operated outside Australia, you acquire the bitcoin on behalf of the customer and thus, you are not the recipient of the supply of bitcoin. In this instance, section 84-5 of the GST Act does not apply when you source the bitcoin for a customer from a non-resident overseas supplier.

However, depending on the circumstances of the customer, section 84-5 of the GST Act may be applicable to the acquisition of bitcoin by the customer from the non-resident overseas supplier through you.

Questions 5 and 6

Based on the facts provided, you do not make any other supplies apart from providing agency services to the customer when acquiring the bitcoin as agent for the customer.

The supply of the agency services is a taxable supply as it meets all the requirements for a taxable supply under section 9-5 of the GST Act.

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