Australia’s Tax Office Releases Bitcoin Guidelines

By August 20, 2014Bitcoin Business
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ATO (Australian Taxation Office) just released its guidance on the tax treatment of cryptocurrencies. The set of regulations coincides with Australia's 2013-1014 income tax returns.

It has been a long time coming as CoinTelegraph initially reported that the ATO is planning to prepare the guidelines, and then postponing, then offering slightly more clarity, and now here we are.

BTC down under

Bitcoin's popularity in Australia as well as New Zealand is booming, and increasingly more local startups are looking to adopt the cryptocurrency. Currently, there are 190 active companies in Australia using Bitcoin and roughly 40,000 active users.

“The Bitcoin Association of Australia estimates that the Australian share of this market capital is approximately 2%. This means that the market capitalization for Australia is approximately $120 million.”

The newly released set of regulations coincides with Australia's 2013-1014 income tax returns. Michael Hardy, senior assistant commissioner, says:

"The guidance paper and draft tax rulings issued today provide certainty for the Australian community on the ATO's treatment of crypto-currencies within the current legislative framework."

The ATO guidelines

The guidelines are meant to inform individuals that Bitcoin transactions should be treated like exchange transactions with comparable tax consequences, unless they're doing it for business purposes. ATO says that there won't be any income taxes or GTS tax implications for people who are not in business. Any capital loss or gain from the disposal of bitcoins paid by someone to buy services or goods for their own personal use/consumption will be considered a personal use asset, provided that the price of a bitcoin doesn't exceed AUD$10,000.

Those using Bitcoin for business purposes may be susceptible to capital gain tax regulations when they dispose bitcoins, as they would with share assets.  The set of rules demands companies to record the value of their transactions by Bitcoin as part of their everyday income. ATO additionally mentions that businesses using Bitcoin may have to deal with tax consequences if they use the cryptocurrency to pay employees. Michael Hardy encourages everyone to thoroughly read the guidelines, mentioning:

"People involved in buying or selling Bitcoin or other crypto-currencies — whether individuals or businesses — are encouraged to read our guidance. If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us".

The guidance paper offers a detailed outline of the tax treatment for transactions linked to cryptocurrencies, particularly Bitcoin.   

  • Using Bitcoin for personal use - There won't be any GTS or income tax implications for people using Bitcoin for personal transactions. If the user doesn't own a company and just wants to pay for services and goods in Bitcoin, he will not be susceptible to any kind of tax returns. However, the purchases must not exceed AUD$10,000.
  • Using Bitcoin for business - those who want to use Bitcoin for business and trade it for services and goods will have to record the value of the purchases in Australian dollars, and mention it as part of their income. The process is similar to receiving non-cash consideration under a barter transaction. When a business receives bitcoins in exchange for services and goods, it may be susceptible to GTS charges on those bitcoins.
  • Using Bitcoin for services and goods - businesses looking to buy business items with Bitcoin are entitled to a deduction derived from the value of those specific items. GTS will be calculated after the general market value of the services and goods. This will be equal to a fair market valuation of Bitcoin at the time the transaction took place.
  • Capital gains - ATO mentions that there may be capital gain tax consequences when companies will disposal of bitcoins. Yet, any capital gain will be reduced by the amount included in that company's quantifiable income as regular income.
  • Using Bitcoin to pay for salaries - when employees have a working contract with a company, and they choose to be paid in bitcoins rather than Australian dollars, the payment is considered as fringe benefits, which means the employer will be susceptible to provisions of the Fringe Benefits Tax Assessment Act.
  • Mining Bitcoin - income derived from mining bitcoins as a business will be included in that company's assessable income. During the mining process, any expenses incurred would receive a deduction. Loss during the mining process may lead to non-commercial loss provisions.

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