In the Australian Tax Office, different kinds of rulings and drafts are there to determine the tax consequences to use Bitcoin (Chuen 2015). All these rulings and regulations have significant importance as they provide in-depth analysis about digital currency along with the tax consequences of the using of Bitcoin. As per the Australian Taxation Office, Bitcoin cannot be considered as money or foreign currency, but it considers Bitcoin as a property. Bitcoin in protected with copyright as it is s digital currency. The online network of the users determines the operation and effectiveness of Bitcoin. Bitcoin is considered as soft cash for its virtual programming and one can use it for dealing anonymously. Businesses in Australia along with the businesses all over the world have adopted the use of Bitcoin for its legitimate mode of transactions. Hence, it is the responsibility of the taxation authority to determine tax regulations and rulings to deal with the transactions of Bitcoin (Samtani and Baliga 2015).
According to the Taxation Determination 2014/26 of Australian taxation Office, Bitcoin is considered as an asset of capital gain under subsection 108-5(1) of the Income Tax Assessment Act 1997 (Barnes and Stephens 2012). As per Section 108-5(1), CGT asset is considered as any kind of property or any kind of right, but it is not a property. As per the high court decision in the case of Yanner v. Eaton, the Australian taxation Office provided the definition of the property. The court accepted the fact in the above case that property is not a thing, but it is the legal relationship with a thing. According to the Para 7 of the particular ruling, multiple tests are there for the identification of the set of legal relationship regarded as a property. The Australian Taxation Office considers the following factors in the determination of Bitcoin as a property.
As per the above discussion, it can be understood that Bitcoins are decentralized in nature. Hence, the Australian Taxation Office has considered Bitcoin as a property as it has the entire necessary characteristic to be a property. Later, the Australian tax Office has explained the necessary aspects of capital gain regarding Bitcoin (Burleson 2013).
The Australian Taxation Office has considered various aspects for the consideration of Bitcoin as a foreign currency as per the Tax Determination 2014/25. As per the ruling of Division 775 of the Income Tax Assessment Act 1997, Bitcoin should not be considered as a foreign currency (Wallace, Hart and Evans 2013). The initial concern of the Australian Taxation Office was about whether Bitcoin should be considered as money or not. Money represents store of value and unit of account. Bitcoin satisfies the criteria of the meaning of money. However, the committee did not find any concrete reason to conspired Bitcoin as money. The main reasons of not accepting Bitcoin as money by the committee was that the use of Bitcoin in less number of communities and the absence of wide use of it. Moreover, Bitcoin is mainly used for the payments of the debts.
In the Income Tax Assessment Act 1997, the Australian Taxation Office discussed the meaning of foreign currency. As per section 995-1 of the Income Tax Act 1997, any currency apart from the Australian currency is considered as foreign currency (Passant 2015). According to the Currency Act 1965, the currency is the only legal form to make monetary transactions in Australia (Singleton and Schenk 2015). As per this rule, the currency law of the other countries needs to recognize the currency of Australia for the making of monetary transactions. In case of Bitcoin, no foreign nation has recognized Bitcoin as the foreign currency. For this reason, the Australian commissioner has taken the decision not to consider Bitcoin as a foreign currency for the purpose of Income Tax Assessment.
Under Income Tax Assessment Act and the Goods and Service Tax (GSTR 2014/D3), the Australian Taxation Office has determined all the rulings whether Bitcoin should be treated as money in the New Tax System (Goods and services Tax) Act 1999 (Palan, Murphy and Chavagneux 2013). This is a crucial consideration for the fact that there is a big gap of meaning between the supply of money and the supply of consideration on which the goods and service tax is liable for taxation. As per Section 195-1 of the Goods and Services Tax Act, the following aspects needs to be there in the term money:
As per the above analysis, it can be seen that Bitcoin does not satisfy any of the above criteria to be a money and does not fall under any of the meanings of the above criteria. Hence, the Australian authority has taken the decision that Bitcoin will be not be considered as money and the transactions of Bitcoin will not be considered as financial supply for the goods and service tax act.
CGT: As per the above discussion of the various tax ruling, it can be seen that Bitcoin is considered as a property under Income Tax Assessment Act 1997. The various kinds of transactions regarding Bitcoin give rise to the CGT events for the consideration of Bitcoin as capital gain tax assets (Hulse et al. 2012). The reason for its significance is the historic fluctuations in the price of Bitcoin. Hence, at the time of disposal, in case the selling price of Bitcoin is higher than the purchase price of the same, there will be capital gain and it will be subject to tax. Hence, capital gain tax needs to be paid on the disposal of the Bitcoin. As per the analysis, it can be observed that the view of the Australian commission will not affect the users of Bitcoin. As per the personal exemption under the Income Tax Assessment Act 1997, the Bitcoin is exempted from tax that are use for purchasing goods or services for the personal use of the individuals. The threshold limit for the exemption of tax regarding Bitcoin is $10,000 (Descôteaux 2014).
GST: It is a complicated process to determine the GST consequences in the process of Bitcoin. According to the taxation ruling, the process of supplying Bitcoin is a taxable process and this process of subject to tax liability. There is an exemption of supply of money in the GST act. As per the above discussion, Bitcoin cannot be considered as money and for this reason, the supply of Bitcoin is a barter transaction. Hence, under the Goods and Service Act, it will be considered as tax supply (Apps and Rees 2013). The taxation ruling of the operation of Goods and Service tax and the tax credit availability is not clear regarding the use of Bitcoin.
There are instances where the tax supply of Bitcoin is taken as nil. The Australian taxation Office has opined that there will not be any significant increase in the revenue of the good due to the use of Bitcoin. However, the process of administration of the business processes with the help of Bitcoin is complex in nature and this process often increases the cost of administration of the business organizations. Hence, it can be seen that there is not much benefit from the imposition of GST on the Bitcoin transactions as the cost of administration increases. According to the provided law, the purchase of products or services with the help of Bitcoin for personal purpose will not be taxable under the act of Australian taxation. Persons or companies registered under GST needs to pay the GST tax on supply. Hence, it can be seen that the process of GST taxation in relation to Bitcoin is a complex process and this process is full of confusion (Litwack 2015).
FBT and Trading Stock: As per the directions of Australian Taxation Office, in case an employer provides his employees with Bitcoins, this process will be treated as fringe benefits. Hence, the taxation for fringe benefits will be applicable on Bitcoin. According to the Australian taxation Office, in case an organization or an individual holds Bitcoins for a longer time, then the Bitcoins will be treated as “trading stocks’ under section 70-10(1) of the income tax assessment act 1997 (Kenny 2012).
Conclusion
As per the above discussion, it can be understood that the popularity of Bitcoin is contiguously increasing in Australia and for this reason; the complexities regarding Bitcoin are also increasing. From the whole discussion, it can be concluded that Bitcoin can be considered as property and thus, Bitcoin is subject to capital gain tax. According to the goods and service tax, the Bitcoin supply is taxable under Australia Taxation Office.
References
Apps, P. and Rees, R., 2013. Raise top tax rates, not the GST. Austl. Tax F., 28, p.679.
Barnes, J. and Stephens, M., 2012. Capital gains tax basics. Concise Collection of Tax Fundamentals, A, p.91.
Burleson, J., 2013. DEVELOPMENTS IN BANKING AND FINANCIAL LAW: 2013: XI. Bitcoin: The Legal Implications of a Novel Currency. Rev. Banking & Fin. L., 33, pp.99-937.
Chuen, D.L.K. ed., 2015. Handbook of digital currency: Bitcoin, innovation, financial instruments, and big data. Academic Press.
Descôteaux, D., 2014. How should Bitcoin be regulated. Economic Note, Montreal Economic Insitute.
Hampton, S., 2015. Undermining Bitcoin. Wash. JL Tech. & Arts, 11, p.331.
Hulse, K., Burke, T., Ralston, L. and Stone, W., 2012. The Australian private rental sector: changes and challenges. Australian Journal of Political Science, 35(1), pp.99-110.
Kenny, P., 2012. Post Implementation Reviews of Recent Australian Tax Reform. J. Australasian Tax Tchrs. Ass’n, 7, p.79.
Litwack, S., 2015. Bitcoin: Currency or Fool’s Gold: A Comparative Analysis of the Legal Classification of Bitcoin. Temp. Int’l & Comp. LJ, 29, p.309.
Palan, R., Murphy, R. and Chavagneux, C., 2013. Tax havens: How globalization really works. Cornell University Press.
Passant, J., 2015. Some Basic Marxist Concepts to Help Understand Income Tax. J. Juris, 27, p.263.
Samtani, S. and Baliga, V., 2015. On monopolistic practices in bitcoin: a coded solution. Indian JL & Tech., 11, p.106.
Singleton, J. and Schenk, C.R., 2015. The shift from sterling to the dollar, 1965–76: evidence from Australia and New Zealand. The Economic History Review, 68(4), pp.1154-1176.
Wallace, M., Hart, G. and Evans, C., 2013. An evaluation of the contribution of Justice Hill to the provisions for the taxing of capital gains in Australia. Austl. Tax F., 28, p.123.
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