Australian taxation professionals' association The Tax Institute has proposed the establishment of a voluntary bitcoin register on which individuals and companies could register a bitcoin public address, with the aim of de-anonymising ownership of the digital currency in Australia.
The Tax Institute suggested the move in its submission to the Senate Economics References Committee inquiry into an appropriate framework for digital currencies in Australia.
"This register would assist in proving that the entity owns the bitcoin held at those addresses," the organisation said in its submission, dated December 1. "This register could be administered by an existing government agency (for example, ASIC or the ATO), which could serve as the regulator/licensing authority for businesses dealing with bitcoin."
The Tax Institute also recommended in its submission that the government may need to develop, or support the development of, systems designed to track the bitcoin blockchain in order for the Australian Taxation Office (ATO) to monitor transactions for taxation purposes.
"We recommend that the committee examine the ability of the ATO to enforce the tax outcomes intended for digital currencies, and the resources required to do so," it said. "In particular, resources may need to be allocated to developing systems to effectively read and monitor the blockchain (the record of all bitcoin transactions), in combination with traditional cash-economy tax auditing techniques."
The institute's suggestions follow the ATO's guidance, released in August, that it would treat bitcoin and other virtual currencies as a commodity for business or high-value transactions over AU$10,000.
The Tax Institute suggested that an alternative interpretation of the existing tax law is that bitcoin is treated as foreign currency.
"Earlier this year, the ATO issued a draft GST Ruling ... which treats transactions involving bitcoin as barter transactions, resulting in payments of bitcoin being taxable supplies in their own right, and subject to GST," it said. "It is our view that this alternative interpretation is desirable from a tax policy perspective.
"For certainty and consistency of treatment, we recommend that the committee consider the merits of a legislative change to confirm that bitcoin is currency for tax purposes," it said. "This approach causes an unnecessary red-tape compliance burden for businesses, including the need to issue two tax invoices for a single transaction, and anomalous outcomes for unregistered parties such as consumers transacting in bitcoin."
In its own submission to the inquiry, the ATO said that bitcoin's taxation treatment is dependent on policy.
"Whether bitcoin or other crypto-currencies should be treated as 'money' or 'currency' is a question of policy," said the ATO in its submission, dated November 26. "The key elements of the ATO’s preliminary views are that bitcoin is a form of intangible property, is not money or currency, and its supply is not a financial supply for GST purposes. Its use is akin to barter."
Meanwhile, the Reserve Bank of Australia (RBA) said in its submission that bitcoin is not widely used enough currently to warrant its oversight and regulation of the virtual currency.
"Digital currencies may raise immediate concerns for other regulators regarding issues such as taxation, money laundering and terrorist financing, and consumer protection," the RBA said in its submission. "Digital currencies raise some potential policy issues for the Reserve Bank in the areas of the payments system, monetary policy, and financial stability.
"Given the very limited use and acceptance of digital currencies in Australia, it is not apparent that these issues currently warrant action by the bank," it said.
The RBA said that the bitcoin public ledger indicates that — on average — 76,000 bitcoin transactions were made globally each day in October 2014, valued at approximately $55 million.
However, the RBA did concede that the concept of a currency with a decentralised ledger, as bitcoin claims, is an innovation with "potentially broad applications for a modern economy", and that digital currencies represent an interesting development in the payments and financial system landscape.
"Accordingly, the bank takes an interest in digital currencies, and monitors developments in this area," it said.
The Senate Committee inquiry's first hearing on November 26 heard that the ATO's current treatment of virtual currencies could hamper the emerging digital currency sector and force businesses overseas.
"It could result in driving the digital currency businesses that [are] emerging in the sector offshore and potentially underground," said Ronald Tucker, chairman of the Australian Digital Currency Commerce Association (ADCCA), during the hearing.