Bitcoin is barter for individuals, taxable for business: ATO

Bitcoin transactions will be treated like barter transactions with similar taxation consequences, unless they are for business purposes, according to new guidance by the ATO on the taxation of crypto-currencies in Australia.
Written by Leon Spencer, Contributor

The Australian Taxation Office (ATO) released its guidance on the taxation treatment of Bitcoin and other crypto-currencies today, timed to coincide with the lodgement of Australians' 2013-2014 income tax returns.

"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," said senior assistant commissioner Michael Hardy.

The guidance paper and rulings calls for individuals' Bitcoin transactions to be treated like barter transactions with similar taxation consequences, unless they are doing it for business purposes.

The ATO said that, generally, there will be no income tax or Goods and Services Tax (GST) implications for individuals if they are not in business or carrying on an enterprise, and if they pay for goods and services in the crypto-currency.

Under the guidelines, any capital gain or loss from disposal of Bitcoin paid by an individual to purchase goods or services for personal use or consumption will be disregarded as a personal use asset — as long as the cost of the Bitcoin is AU$10,000 or less.

However, individuals using Bitcoin as an investment may be subject to capital gains tax rules when they dispose of it, as they would for share assets.

The guidance papers also call for businesses to record the value of Bitcoin transactions as part of their ordinary income. They also need to charge GST when they supply Bitcoin, and may be subject to GST when receiving Bitcoin in return for goods and services.

Meanwhile, record-keeping requirements for Bitcoin transactions are to remain similar to other transactions, and where there may be a taxation consequence, people are encouraged to keep records of the transaction date, the value in Australian dollars, what it was for, and the identity of the other party in the transaction.

The ATO also said that there may be fringe benefit tax consequences for businesses using Bitcoin to pay employee salaries.

Hardy said that the ATO had consulted extensively with crypto-currency experts, businesses, industry bodies and other external stakeholders to develop the guidance and explain the obligations of Bitcoin users.

"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," he said.

The ATO guidelines follow tax advice issued by the Inland Revenue Authority of Singapore (IRAS) earlier this year on the purchase, sale, and exchange of Bitcoin for local businesses and individuals.

Under the advice provided by the IRAS, if a Singaporean business offers the buying and selling of Bitcoin, they will be subject to taxation on the gains made on the sale of Bitcoins.

However, if the Bitcoin forms part of the business' investment portfolio, the IRAS considers the gains from any sale to be capital in nature and not subject to taxation.

As a number of regions around the world, including China and Europe, continue to eye Bitcoin and other crypto-currency with an ambivalent eye, others have ambraced emerging digital currencies, with California moving to legalise crypto-currencies in the state, and Ecuador even planning to create an official national digital currency.

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