Bitcoins and Taxes: Australian Cryptocurrency Regulations
Bitcoin and other cryptocurrencies had an amazing run last year. In 2016, the AU$ - Bitcoin exchange closed at 1,320 AUD per Bitcoin. However, by 2017, the exchange rate has gone up to 16,770:1. With a lot of people taking interests in cryptocurrency, governments around the world have put up measures to address security issues associated with them, and their plans in regulating the cryptocurrency market.
Businesses on the other hand may become confused with regards to the type of regulation that can be implemented in this new tool for trade. In addition, finance professionals, especially accountants, will have a hard time in recording transactions and identifying their client’s obligations without updated instructions from the Australian Taxation Office (ATO).
But first, what are “Bitcoins” and what are “cryptocurrencies”?
Bitcoin is the most popular form of cryptocurrency today. It was created by Satoshi Nakamoto, a pseudonym used by the person or group who launched Bitcoin in 2009.
Cryptocurrency, on the other hand, is a form of digital currency that uses cryptography for security, making it difficult to counterfeit. Cryptocurrencies are not issued by any government central bank, and cannot be interfered by, nor manipulated by any government.
For its part, the Australian government through the Australian Tax Office (ATO) have laid out clarifications in the tax treatment of cryptocurrencies in the country. Here are some things worth knowing about cryptocurrency regulations in Australia:
1. Bitcoin and other cryptocurrencies are not to be treated as money nor as foreign currency.
According to the ATO, the transaction nature of bitcoin is similar to a barter arrangement. It is not to be viewed as money nor any form of foreign currency. Also, the ATO has made it clear that the supply of bitcoin and other cryptocurrencies are not financial supplies for goods and services tax (GST). However, they are considered as assets for capital gains tax purposes.
Thus, the tax office requires businesses or individuals transacting with cryptocurrency to maintain a record containing the following:
- Date of transactions
- Transaction amount in AUD (should be taken from a reputable online exchange source)
- Purpose of transaction
- Identification of the other party or their Bitcoin address
2. Cryptocurrencies for Personal Use
There are no income tax or GST implications if you are using bitcoin in Australia (or any other cryptocurrencies) in paying for goods and services for your personal consumption. At the same time, capital gains or loss in transactions below AU$ 10,000 are also disregarded (as a use of personal asset).
3. Cryptocurrencies for Business Use
On the other hand, if you are using bitcoins to purchase business items, you are entitled to a deduction based on the arm’s length value of the item purchased, including trading stock.
Meanwhile, GST is payable on the bitcoin supply made in the purchase of items for your business. It is calculated based on the market value of goods and services acquired, equal to the fair market value of bitcoin at the time of the transaction.
4. Paying employees in Cryptocurrency
Before you can pay your employees salaries or wages in bitcoin and cryptocurrency, they need to secure a valid salary sacrifice arrangement first. However, keep in mind that the payment of bitcoins or any other cryptocurrency is considered as a fringe benefit, and you as their employer, is subject to the Fringe Benefits Tax Assessment Act.
If there is no salary sacrifice agreement made, the remuneration through cryptocurrency is treated as normal salary, and you will need to comply with the pay as you go (PAYG) obligations as usual.
For years now, the bitcoin and the cryptocurrency market has been viewed as unpredictable, sketchy, and speculative. However, with the success of Bitcoin last year, the cryptocurrency industry has gained the support and trust of people around the world. With more people using bitcoin and cryptocurrency in Australia for trade, it has become impossible for the government to ignore the need for cryptocurrency regulation.
As advances in financial technologies are made, we can expect the government to catch up with the proper regulations and ensure that these instruments are safe for public use.
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