The Australian Taxation Office is formulating new rules for the taxing of cryptocurrencies such as bitcoin and litecoin.
The ATO has set up a taskforce to investigate bitcoin and other cryptocurrencies and how best to prevent tax avoidance in Australia through the use of such curriencies. Documents obtained under Freedom of Information law by the ABC show that the agency has been keeping a close eye on cryptocurrencies as far back as 2012, but only in January this year had the organisation started forming an official taskforce to investigate bitcoin.
There was concern expressed by the ATO that through bitcoin was the potential for money laundering and cross-border transactions to occur unless online currency traders were subject to the same rules as existing financial operators, and the ATO needs to be "vigilant with the increasing popularity of virtual currency to be prepared for it being implemented in business transactions in Australia".
In a February committee briefing minutes document, the ATO indicated it will have advice on the taxation of bitcoin ready by the end of this financial year.
"Transaction involving bitcoin and similar systems will have taxation consequences. The ATO is working on a holistic understanding of the taxation consequences of bitcoin to be in a better positiion to provide more complete advice by the end of the financial year," the note stated.
"Bitcoin is no more anonymous than physical cash. Conventional techniques that deal with tax evasion and avoidance should be applicable to any attempt to use bitcoin for tax evasion or avoidance."
Businesses that deal with small cash, might seek to use virtual currency to avoid the goods and services tax (GST), the ATO warned, and bitcoin could be used to hide taxable income.
The ATO said it still had questions on whether bitcoin would be considered a foreign currency, and how capital gains tax, or GST should apply to bitcoin. There was also the more fundamnetal question on whether bitcoin itself could be considered 'currency' or 'money'. The briefing notes that "wide public acceptance" is a threshold for something to be considered 'money', or the adoption the virtual currency in other countries.
The Australian Transaction Reports and Analysis Centre (Austrac), which is responsible for countering money laundering,it can track conversions of the Australian dollar into bitcoin, and vice versa. The organisation stated in February this year that bitcoin is merely a commodity used to transfer value, similar to gold.