Senate committee calls for GST changes to treat bitcoin as money

An Australian Senate committee has warned of the over-regulation of digital currencies like bitcoin in their early stages, and recommended legislative changes to treat digital currencies as money.

The Australian Senate Economics References Committee has said that the GST treatment of digital currencies is the most pressing concern for Australian businesses that are using currencies such as bitcoin, and has called for changes to the GST Act to amend the definition of money.

In its Digital currency-game changer or bit player report, the committee took the view that the current ATO treatment of bitcoin as barter for individuals creates a double taxation effect, and results in additional burdens for users. According to the report, CoinJar said the ATO ruling had made it uncompetitive against non-Australian rivals.

"The committee is of the view that digital currency should be treated as money for the purposes of the goods and services tax," the report said.

Any change to the GST Act, however, would require the agreement of the Australian states and territories. The federal government is currently discussing with its state and territory counterparts the prospect of changing the way GST is collected from overseas online retailers.

Australian Treasurer Joe Hockey last week said that the government will get online retailers to apply and collect GST on potentially all overseas online purchases.

While the report said there was general agreement that digital currencies should be exempt from GST, it was more circumspect when it came to treating bitcoin as a foreign currency for the purposes of income tax and fringe benefits, and recommended that digital currencies be included in the federal government's taxation white paper.

The committee also said that while the use of digital currencies is in its embryonic stages, it favoured a self-regulation approach be taken, and backed the Australian Digital Currency Commerce Association in creating a set of industry best practices, as well as the creation of a Digital Economy Taskforce to gather information to allow regulators to decide when to introduce regulation.

"This self-regulation model should be developed in consultation with government agencies, as well relevant stakeholders in the banking, finance, and payments sectors. The committee considers that this will ensure that businesses are prepared for regulatory oversight in the future as the industry expands and grows," the committee said.

Bitcoin has had a chequered history, with exchanges of the volatile currency suffering millions of dollars worth of thefts.

Over the weekend, Mark Karpeles, the CEO of the most famous Bitcoin exchange, Mt Gox, was arrested in Tokyo on suspicion of falsifying financial records. If found guilty, Karpeles faces up to five years in prison or a fine of 500,000 yen.

Mt Gox closed without warning and filed for bankruptcy in February 2014, leaving approximately $500 million worth of bitcoin unaccounted for.