Edited version of private advice

Authorisation Number: 1052000336361

Date of advice: 30 June 2022

Ruling

Subject: GST consequences of using Tether as payment

Question 1

When you receive Tether as consideration for a supply you make, are you liable to collect and remit GST?

Answer

Yes. If you receive Tether as payment for your sales of goods and services, normal GST rules apply. When you make a taxable supply you must remit GST on that transaction.

Question 2

When you provide Tether as consideration for an acquisition you make, are you entitled to an input tax credit?

Answer

Yes. If you provide consideration for a creditable acquisition you are entitled to a claim input tax credit for that acquisition.

Question 3

When you dispose of Tether you hold on an exchange are you required to collect and remit GST?

Answer

No. Tether is an input taxed financial supply, meaning that you are not required to pay GST on any sales of Tether that you make. Additionally, Tether is considered GST-free when sold to a non-resident.

Question 4

When you dispose of Tether you hold on an exchange are you entitled to input tax credits?

Answer

No. Generally, you are not entitled to input tax credits for any acquisitions related to making input taxed supplies such as Tether. However, some exceptions apply depending on your circumstances.

This ruling applies for the following period:

1 July 20XX to 1 July 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are carrying on a business providing services and you are registered for GST from 1 July 20XX.

You have indicated a strong preference for Tether as your primary form of consideration when making and acquiring supplies.

Tether, also known as USDT, is a crypto-asset stablecoin whose value is derived from the United States dollar.

You receive Tether as payment for your services.

You pay for outsourced work using Tether whenever possible.

You pay for your operating expenses/service fees with Tether whenever possible.

You pay for online products (e.g. software) using Tether whenever possible.

When it is not possible to pay with Tether, you convert Tether to fiat currency using domestic & international exchanges.

You are not carrying on a business trading Tether.

Relevant legislative provisions

A New Tax System (Goods and Services Tax) Act 1999 Section 7-1

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

A New Tax System (Goods and Services Tax) Act 1999 Section 9-15

A New Tax System (Goods and Services Tax) Act 1999 Section 9-75

A New Tax System (Goods and Services Tax) Act 1999 Section 11-5

A New Tax System (Goods and Services Tax) Act 1999 Section 11-15

A New Tax System (Goods and Services Tax) Act 1999 Subdivision 40A

A New Tax System (Goods and Services Tax) Regulations 2019 Section 40-5.09

A New Tax System (Goods and Services Tax) Regulations 2019 Section 38-190

A New Tax System (Goods and Services Tax) Regulations 2019 Section 70-5.02

A New Tax System (Goods and Services Tax) Regulations 2019 Section 70-5.03

Reasons for decision

Question 1

Detailed reasoning

Under subsection 7-1(1) of the GST Act, GST is payable on taxable supplies and importations.

Section 9-5 of the GST Act provides that 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 the indirect tax zone; and

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

As you are registered for GST and are making supplies connected with the indirect tax zone in the course or furtherance of your enterprise, the GST treatment of your supplies will depend on whether you're receiving consideration.

Consideration is defined by subsection 9-15(1) of the GST Act as:

a)    any payment, or any act or forbearance, in connection with a supply of anything; and

b)    any payment, or any act or forbearance, in response to or for the inducement of a supply of anything

'Payment' refers to any form of payment whatsoever, it can be either monetary or non-monetary. When you accept Tether as payment for your goods and services, you are making a supply for consideration.

In short, accepting Tether as payment has no effect on your GST liability and you will be required to collect and remit GST as necessary. If you receive Tether as payment for your sales of goods and services, normal GST rules apply. When you make a taxable supply you must remit GST on that transaction.

Question 2

Detailed reasoning

Under subsection 7-1(2) of the GST Act, entitlements to input tax credits arise on creditable acquisitions and creditable importations.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

a)    you acquire anything solely or partly for a creditable purpose; and

b)    the supply of the thing to you is a taxable supply; and

c)    you provide, or are liable to provide, consideration for the supply; and

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

As your acquisitions relate to your business and are likely all taxable supplies, entitlement to input tax credits will depend on whether you are providing consideration for the supplies acquired.

Consideration is defined by subsection 9-15(1) of the GST Act as:

a)    any payment, or any act or forbearance, in connection with a supply of anything; and

b)    any payment, or any act or forbearance, in response to or for the inducement of a supply of anything.

'Payment' refers to any form of payment whatsoever, it can be either monetary or non-monetary. When you choose to pay for goods and services with Tether, you are providing consideration for a supply.

To summarise, the consequences of using Tether as a method of payment are the same as the consequences of using money as payment. If you provide consideration for a creditable acquisition you are entitled to a claim input tax credit for that acquisition.

Question 3

Detailed reasoning

As you're often unable to identify the counterparty when disposing of Tether on an exchange, you're able to substitute the location of the exchange for the residency status of the counterparty. For example, sales of Tether through an overseas exchange will be treated as if they were made to a non-resident, outside of Australia.

When disposing of Tether you hold on an Australian exchange

Under subdivision 40A of the GST Act, financial supplies are input taxed and therefore do not attract GST. Subsection 40-5.09(1) of the GST regulations, provides that the provision, acquisition or disposal of an interest mentioned within the table contained in subsection 40-5.09(3) is a financial supply if:

a)    the provision, acquisition or disposal of that interest is:

                      i.        for consideration; and

                     ii.        in the course or furtherance of an enterprise; and

                    iii.        connected with the indirect tax zone; and

b)    the supplier is

                      i.        registered or required to be registered; and

                     ii.        a financial supply provider in relation to supply of the interest.

Item 11 of the table lists derivatives.

A derivative is broadly defined by Goods and Services Tax Ruling GSTR 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2) as a financial instrument whose value is tied to or derived from an underlying security, commodity, currency, liability or index.

Tether, having a value derived from the United States dollar, meets the definition of a derivative. This means that, when disposing of Tether on an Australian exchange, you satisfy the requirements outlined in Subsection 40-5.09(1) of the GST regulations to be making a financial supply. As above, financial supplies are input taxed and do not attract GST.

When you dispose of Tether on an Australian exchange you will be liable for GST on that supply as it is an input taxed supply.

When disposing of Tether you hold on an overseas exchange

Under Item 2 in the table in subsection 38-190(1) of the GST Act, a supply to a non-resident recipient who is not in the indirect tax zone when the thing supplied is done, is GST-free if:

a)    the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done, nor a supply directly connected with the real property situated in Australia; or

b)    the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered

Additionally, a supply will not be GST free if any of the provisions within subsection 38-190(2), (2A) or (3) apply to that supply.

Supplying Tether, via an overseas exchange, satisfies the positive limbs and does not trigger any of the negative limbs outlined in section 38-190 of the GST Act, meaning it is considered a GST-free supply.

When you dispose of Tether on an overseas exchange you will not be liable for GST on that supply.

Question 4

Detailed reasoning

When disposing of Tether you hold on an Australian exchange

Subsection 7-1(2) of the GST Act provides that entitlements to input tax credits arise on creditable acquisitions and creditable importations.

Section 11-5 of the GST Act provides that you make a creditable acquisition if:

a)    you acquire anything solely or partly for a creditable purpose; and

b)    the supply of the thing to you is a taxable supply; and

c)    you provide, or are liable to provide, consideration for the supply; and

d)    you are registered, or required to be registered

Paragraph 11-15(2)(a) provides that you do not acquire a thing for creditable purpose to the extent that the acquisition relates to making supplies that would be input taxed.

Subsection 11-15(4) states that an acquisition is not treated, for the purposes of paragraph (2)(a), as relating to making supplies that would be input taxed if:

a)    the only reason it would (apart from this subsection) be so treated is because it relates to making financial supplies; and

b)    you do not exceed the financial acquisitions threshold.

Subsection 189-5(1) of the GST Act states that you exceed the financial acquisitions threshold if, in a 12-month period, assuming all financial acquisitions you have made were made solely for creditable purpose either or both of the following apply:

a)    the amount of all the input tax credits to which you would be entitled for those acquisitions would exceed $150,000 or such other amount specified in the regulations

b)    the amount of the input tax credits referred to in paragraph (a) would be more than 10% of the total amount of the input tax credits to which you would be entitled for all your acquisitions and importations during that 12 months (including the financial acquisitions)

As Tether is a financial supply, provided you do not exceed the financial acquisitions threshold, you will be entitled to full input tax credits for all acquisitions relating to your sales of Tether.

If you do exceed the financial acquisitions threshold, you may still be entitled to a reduced input tax credit. Division 70 of the GST Act provides that acquisitions relating to financial supplies can attract reduced input tax credits, even though no input tax credit could arise under the basic rules.

Section 70-5.02 of the GST regulations specifies what acquisitions attract reduced input taxed credits and section 70-5.03 provides the percentage to which an input tax credit is reduced. For expenses most likely to be incurred when disposing of Tether such as commission, brokerage costs or arranging services provided by entities that facilitate the buying & selling of Tether (items 21 & 22 of the table within section 70-5.02), you will be entitled to an input tax credit for 75% of any GST included in the purchase price.

To summarise, if you do not exceed the financial acquisitions threshold you will be entitled to a full input tax credit for acquisitions relating to the sale of Tether on an Australian exchange. If you do exceed the financial acquisitions threshold you may still be entitled to a reduced input tax credit.

When disposing of Tether you hold on an overseas exchange

As reasoned in Question 3 when you sell Tether on an overseas exchange you are making a GST-free supply. This means that, unlike input taxed supplies, there are no provisions disallowing acquisitions relating to that sale from being for creditable purpose.

In short, you are entitled to full input tax credits for any purchases that relate to making a GST-free supply of Tether via an overseas exchange.