Edited version of your written advice

Authorisation Number: 1012829411854

Date of advice: 25 June 2015

Ruling

Subject: GST and bitcoin

Question 1

Do you make a taxable supply under section 9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when you transfer bitcoin to the customer in the bitcoin transaction?

Answer

No, you do not make a taxable supply of bitcoin when you transfer bitcoin to the customer, provided that the third party bitcoin exchange that you acquire the bitcoin from does not prevent you acting as an agent.

Question 2

Do you make a taxable importation under section 13-5 of the GST Act, when you transfer bitcoin to the customer in the bitcoin transaction?

Answer

No, you do not make a taxable importation under section 13-5 of the GST Act when you transfer bitcoin to the customer.

Question 3

Is GST payable by you as a recipient under Division 84 of the GST Act, for the bitcoin acquired via an overseas bitcoin exchange?

Answer

No, GST is not payable by you under Division 84 of the GST Act for the bitcoin acquired via an overseas bitcoin exchange.

Question 4

Do you make any other taxable supply under section 9-5 of the GST Act in the bitcoin transaction?

Answer

Yes, you make a taxable supply of agency services under section 9-5 of the GST Act when you act as a buying agent for the customer in relation to the bitcoin transaction.

Relevant facts and circumstances

You are an Australian company that operate your business in Australia. You are registered for the goods and services tax (GST) and trade through a bitcoin website (website) which connects buyers and sellers of bitcoin. You use the website to find customers who want to buy bitcoin. You offer to act as a buying agent for customers and acquire bitcoin on their behalf from third party bitcoin exchanges.

The customer is an Australian resident for tax purposes and is present in Australia at the time of the bitcoin transaction.

1. You do not own or operate the bitcoin website.

2. The bitcoin transaction with the customer is governed by your Terms and Conditions (Terms) which form a contract between you and the customer. The customer is required to accept the Terms when initiating a trade (Trade) with you. You have provided us with a copy of the Terms.

3. In order to buy bitcoin through you, the customer must undertake a Trade with you through the website

4. You do not keep a supply of bitcoin held in your own right, except for the purposes of meeting escrow requirements. You only buy bitcoin as needed to satisfy each customer's Trade.

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

a) You do not sell your own bitcoin. You provide buyer's agency services.

b) You acquire bitcoin on your customer's behalf from one of the bitcoin exchanges or bitcoin sellers that you have access to.

c) The customer directs and authorises you to acquire the relevant amount of bitcoin on behalf of the customer, at the Quoted Rate plus the commission (which in total equals the amount listed by you in the advertisement).

d) The customer appoints you as their agent for the sole purpose of acquiring the bitcoin.

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

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

g) You do not act as agent for any bitcoin exchange.

h) Your terms disclose that you if there is any difference between the price you pay at the third party bitcoin exchange and the agreed price with your customer you will absorb or retain this difference.

i) You charge a fee (commission) which is a fixed percentage of the Australian dollar value of the Trade, you charge GST on the commission, and will issue a tax invoice on request.

Bitcoin website - Terms of use

The Terms and Guides which is located on the website and explain how the website operates form part of the facts. Your terms indicate that 'We do not control the website, and may also be subject to other terms and conditions imposed by the operator of the website.'

You have received written clarification from the website about the above terms and have provided us a copy:

Third party bitcoin exchange - XYZ Terms of Service

The third party bitcoin exchanges that you use to acquire bitcoins all have differing terms and conditions, but you have confirmed that these exchanges do not have terms that prohibit or preclude you from acting as an agent when you use those exchanges. For example, XYZ is a third party bitcoin exchange that you use to acquire bitcoins on behalf of your customers. XYZ's Terms of Service provides that 'You agree only to trade with legally obtained funds that belong to you'.

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

Detailed reasoning

Question 1

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 is it another type of input taxed supply.

GST is payable on a taxable 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 of Australia).

Under section 9-5 of the GST Act, the first requirement that needs to be met to make a taxable supply is that you have made a supply for consideration. You have a written agency agreement with your customers. If you are acting as an agent for the customer when acquiring bitcoin from a third party bitcoin exchange, it will be the seller on the third party bitcoin exchange that is making the supply of bitcoin to your customer not you. If this is the case you will not be making a taxable supply of bitcoin to your customer.

Are you acting as agent for the customer in the bitcoin purchase 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.

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.

Paragraph 28 of GSTR 2000/37 discusses the factors that are relevant for indicating an agency relationship:

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 or 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.

Paragraph 29 of GSTR 2000/37 states:

29. In some situations, these factors may be difficult to establish. For example, situations may arise where:

• the existence of a principal is disclosed but not names; or

• the existence of a principal is not disclosed to third parties.

However, documents used by the parties and the conduct of the parties may still indicate the existence of an agency relationship.

Application of factors for determining agency to you:

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

Paragraphs 32 and 34 of GSTR 2000/37 explain the relevance of written agreements and the factual circumstances:

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). ….

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

Your customer agrees under your Terms that you do not sell bitcoin, but are appointed as the customer's agent for the purpose of acquiring bitcoin. The customer directs and authorises you to acquire the relevant bitcoin on their behalf, at the best price through the bitcoin exchanges that you use. This evidences an intention by you and your customer to enter into an agency relationship. As indicated above this written agreement needs to be given due weight whilst also taking into account the other factual circumstances.

One factor that is relevant to the transaction is the 'Escrow service' provided by the bitcoin website. Because users hold their interest in bitcoin via an account with the bitcoin website, the bitcoin you might deposit will not be the same bitcoin that your customer receives on withdrawing from their bitcoin website account. This 'co-mingling' of the bitcoin via use of the bitcoin website does not affect the ability of the bitcoin website users to supply bitcoin to each other using the escrow service. Conversely the way that the escrow operates, does not prevent you and your customer agreeing under your written agreement to use the escrow mechanism as a proof of solvency or security deposit mechanism, rather than as a means to supply your own bitcoin to your customer. Therefore your use of the escrow service does not by itself prevent an agency relationship.

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

When a purported agent (you) enters into a contract on behalf of the principal (your customer) the third party (bitcoin exchange) may not be aware of whether you are acting as an agent, this may be an undisclosed agency (paragraph 29 of GSTR 2000/37).

However there may be express or implied terms between the purported agent and the third party which precludes the purported agent acting for an undisclosed principal. For example the contract between the agent and the third party may require that each party acts as principal, this will take precedence over an agency agreement between the purported principal and agent (Dal Pont, GE 2008, Law of Agency LexisNexis, Chatswood,19.34).

This principle would apply to any agreement between you and a third party bitcoin exchange which specified that you must only act as principal and must not act as an agent for another entity. The third party bitcoin exchange XYZ does not have terms that suggest that users cannot act as agents for others when using the exchange. The requirement that you use funds legally acquired by you does not prevent you acting as an agent for your customer. Therefore you are not prevented from acting as an undisclosed agent when you use XYZ bitcoin exchange.

However if the terms of other bitcoin exchanges that you use contained terms that prevented agency, this would be a material factor and falls outside the facts ruled upon in this ruling.

The second relevant agreement is the bitcoin website terms. Your Terms with your customer indicates that they are subject to the bitcoin website terms. The bitcoin website terms refer to you acting on your own behalf, and not acting as a broker or intermediary.

The following factors are relevant in considering the impact of the bitcoin website terms:

• As you acquire the bitcoins as agent using third party bitcoin exchanges rather than from sellers on the bitcoin website, the terms of the third party bitcoin exchanges are more relevant, as this is the specific contract that you are entering into as agent with the authority of your customer.

• You have provided clarification from the bitcoin website indicating that the terms are intended to require that purchasers only act on their own behalf rather than you as a 'seller'. Whilst not determinative the bitcoin website's response leaves open the possibility that via their conduct they would accept that an entity acting as a buying agent is not in breach of the bitcoin website terms.

Therefore on balance it is considered that as the bitcoin exchange XYZ does not prevent agency, you can act as an undisclosed agent when you acquire bitcoin, the bitcoin website's Terms do not prevent this.

Whether you bear any significant or commercial risk

It is recognised that the nature of bitcoin prices are set in an open market and may move in a short period, and this may lead to a difference between the quoted rate and the actual price of bitcoin ultimately acquired and the customer. The customer also agrees that you will retain any profit or bear any loss. You also have the discretion to reject a Trade request for commercial reasons for example where there is a risk of significant fluctuation in the bitcoin price. Balancing these factors it is accepted that whilst you do take some commercial risk this may not preclude an agency relationship existing.

Whether you act in your own name

You advised that you source the bitcoin from the bitcoin exchange through an account you held in your name rather than in the name of the customer. This is consistent with you acting as an undisclosed agent for your customer when you deal with the third party bitcoin exchange.

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 by the commission paid by the customer. However, under your Terms you absorb any loss and retain any profit due to the difference between the quoted rate and the actual price of bitcoin ultimately acquired from the Bitcoin Exchange. This disclosed arbitrage will affect the remuneration you receive as an agent. This does not necessarily diminish claims to agency (see Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd ACN 087 011 541 [2008] FCA 1591).

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

It is recognised that bitcoin is traded via exchanges and other methods and has a fluctuating market price, and to some degree the 'price' is determined by the market price.

Summary

It is relevant to emphasise at this point that if the third party bitcoin exchange or any other third party that you use to acquire bitcoins has an agreement with you that indicates that you must act as principal (or should not act as an agent) then such a factor may be determinative in indicated that you are not acting as agent (despite any written agreement you have with your customer). However the facts on which this ruling is based relate to bitcoin exchanges that do not require you to only act as a principal.

Some of the factors that relate to the use of the bitcoin website such as the use of escrow and the bitcoin website terms may in isolation not support agency, however as explained above viewing these factors in context they do not in themselves preclude an agency relationship. On balance, giving due weight to the parties written agreement that indicates that you and your customer intend that you will act as agent in acquiring bitcoin, it is considered that you are acting as an agent for the customer when acquiring the bitcoin from the third party bitcoin exchange.

As you are acting as agent you are not making a supply of bitcoin to the customer when transferring the bitcoin ordered by the customer to the customer's Website account. The supply of bitcoin to the customer is made by the seller on the third party bitcoin exchange. As you have not made the supply, you have not made a taxable supply of bitcoin under section 9-5 of the GST Act.

Question 2

Taxable importation under Division 13 of the GST Act relates to goods that are imported into Australia. According to GSTR 2014/3 bitcoin is not goods. Accordingly, Division 13 of the GST Act is not applicable to the bitcoin transaction that you conduct.

Question 3

Division 84 of the GST Act is about supplies of things other than goods or real property taking place outside Australia. Division 84 of the GST Act does not apply as you are not the recipient of the supply of the bitcoin from the seller on the third party bitcoin exchange to your customer.

Question 4

You are making a taxable supply of agency services to your customer when acquire bitcoin as agent on their behalf from third party bitcoin exchanges.

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