Edited version of your written advice

Authorisation Number: 1012780850413

Ruling

Subject: GST and acquisition of bitcoin through an agent

Questions

1. Do you make a supply or a taxable importation when you transfer bitcoin to the customer in the bitcoin transaction under the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)?

2. Do you make a taxable supply under Division 84 of the GST Act in the bitcoin transaction?

3. Do you make any other taxable supply in the bitcoin transaction?

Advice

1. 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.

Based on the facts received, you do not make a taxable supply under section 9-5 of the GST Act when you transfer bitcoin to the customer in the bitcoin transaction.

2. No, based on the facts received you do not make a taxable supply under Division 84 in the bitcoin transaction.

3. From the facts received, you only make a taxable supply of agency services to the customer in the bitcoin transaction.

Relevant fact

You are an Australian company and operate your business in Australia. You are registered for the goods and services tax (GST) and operate a website which allows any person to buy bitcoin.

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

You provided the following information for the bitcoin transaction:

1. In order to buy the bitcoin through the website, a person (customer) must first place an order

2. The value of the transaction in Australian dollars (noted at paragraph 1(b) above) is calculated at the quoted rate.

3. Once an order is placed, the customer must make an over-the-counter Australian dollar cash deposit for the transaction amount, into your Australian bank account, or an Australian bank account maintained by your related company, within xx minutes of placing the order.

4. As soon as the deposit is made, you are obliged to fulfil the order by sourcing the bitcoin on behalf of the customer and sending it to the public address specified by the customer.

5. In order to source the bitcoin, you place an order for the relevant amount of bitcoin at the quoted rate on a Bitcoin Exchange, through your account on that exchange.

6. You have an account with a number of Bitcoin Exchanges, some of which involve you having funds on deposit. However, you do not keep a supply of bitcoin held in your own right. You only buy bitcoin as needed to satisfy each customer order.

7. You keep an online bitcoin wallet hosted on your secure server, for the purposes of receiving bitcoin from the Bitcoin Exchange, and then transferring bitcoin to the customer. Once you receive the relevant amount of bitcoin from the Bitcoin Exchange, you immediately transfer that bitcoin to the public address specified by the customer.

8. The bitcoin transaction is governed by your Terms of Use, which form a contract between you and the customer. The customer is required to accept the Terms of Use to accept the order. We have received a copy of the Terms of Use.

9. The following key points (form the Terms of Use) 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 their behalf, at the agreed price including the commission.

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.

f) You must source a tax invoice to the customer which specifies the amount of bitcoin acquired, the amount of the 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.

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:

Question 1

Taxable importation

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

The Australian Taxation Office (ATO) has published Goods and Services Tax Ruling GSTR 2014/3 to explain the Commissioner's view on the GST consequences of transactions 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.

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.

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).

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 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?

Goods and Services Tax Ruling GSTR 2000/37 discusses the general law in relation to agency relationships.

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 state:

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 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.

Application of Agency principles to you as per facts received:

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

The customer enters into a contractual agreement with you and appoints you as their agent for the sole purpose of acquiring the bitcoin under the order, upon accepting the Terms of Use on the website at the time of placing an order.

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 the average price operates and discloses exactly what happens if the actual price varies. This includes getting the customer's authorisation to retain any gain that may arise if the actual price is less than average price quoted. It also explains currency conversions, and so on that makes up the average price.

Whether you bear any significant or commercial risk

In conducting the Bitcoin Transaction, you do bear some commercial risk of prices moving whilst offering the customer a fixed price. However, 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 from the Bitcoin Exchange through your account on that Exchange, in your own name rather than the name of the customer. It is accepted that practically 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.

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 receive commission that you charge the customer for your services. However, you also receive the profit or take a loss if there is a difference between the quoted rate and the actual price of the bitcoin acquired. This is addressed by disclosure clauses in the Terms of Use and is fully disclosed to the Customer.

Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd ACN 087 011 541 [2008] FCA 1591 at 52 indicates that there will be circumstances where a principal authorises an agent to retain a gain made from entering into a transaction on behalf of the principal.

In your case, the variations between the actual price and the quoted rate (average price) are a practical consequence of the time gap between the customer placing an order and you receiving the funds and then executing the bitcoin buy transaction.

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 under the order. This authority does not extend to any selling of bitcoin. However, you need to set an amount for a bank deposit to be made by the customer before actually buying the bitcoin under the customer order.

On the basis that the Bitcoin Exchanges provide a market price, neither the customer nor you can control or set the price. You setting the average price are 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 the total factual circumstances surrounding the Bitcoin Transaction 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 in the Bitcoin Transaction.

Question 2

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 is about intangible supplies from offshore that are taxable supplies under Division 84 of the GST Act and 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.

(2) 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.

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

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

When you source the bitcoin for a customer from a Bitcoin Exchange located and operating outside Australia, you acquire the bitcoin on behalf of the customer and therefore 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 made by the customer from the non-resident overseas supplier through you.

Question 3

From the facts available, you do not make any other supplies apart from providing buyer's 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.