Too early to make tax changes for bitcoin in Australia: Treasury

​It is too early into bitcoin's development in Australia to make changes to the tax laws around the cryptocurrency, according to the Australian Treasury Department.
Written by Leon Spencer, Contributor

The Australian Treasury Department's Kate Preston has suggested that it is too early into bitcoin's development in Australia to make changes to the tax laws around the cryptocurrency.

Preston, who is general manager of the department's Revenue Group, and in charge of advising the government on revenue and taxation policy matters, told a Senate Committee inquiry into the local treatment of digital currencies that the current tax treatment would suffice while the likes of bitcoin are still in their "infancy".

"I would say that we have no issues with the way that the ATO has dealt with it," said Preston during an Economics Reference's Committee hearing on Wednesday. "I think we will continue to assess the environment, but I would stress that it is an industry, if you like, that is in its infancy.

"To jump in and suggest there should be changes to the tax law to accommodate it is a little bit early in that process," she said.

Preston was responding to comments by committee chair Labor Senator Sam Dastyari, who asserted that local bitcoin businesses are likely to move offshore in order to get around the Australian Taxation Office's (ATO) current tax regime for digital currencies.

In August, the ATO released its guidance on the taxation treatment of bitcoin and other cryptocurrencies in Australia, treating digital currencies like bitcoin in the same way as barter transactions with similar taxation consequences, unless it is for business purposes.

This treatment of bitcoin and other digital currencies as a commodity, rather than a currency such as the Australian dollar, effectively sees it double taxed; once when it is sold, and again when it is bought. It is a treatment that Australians who work with bitcoin have said is already compelling some businesses to move their operations offshore.

"It could result in driving the digital currency businesses that [are] emerging in the sector offshore and potentially underground," chairman of the Australian Digital Currency Commerce Association Ronald Tucker told the committee in November.

However, Preston said on Wednesday that any changes made to the Australian government's approach to bitcoin and other cryptocurrencies should begin with its regulatory or legislative framework, rather than its taxation treatment.

"The Treasury view would be that, taxation is not where you start," said Preston.

Brett Peterson of the ATO's Tax Council Network, however, told the committee hearing that under the present definition of the term "currency" in the taxation laws, if another country unilaterally adopted bitcoin as its official fiat currency, then it could be treated locally as foreign currency, and taxed appropriately.

"But that's not a new notion," he said.

In fact, Ecuador launched an official government digital currency in February, with the country passing a Bill last July giving its Central Bank the authority to create digital dollars. These digital dollars, however, are not bitcoin.

Meanwhile, the director of the Attorney-General's Financial Crime Section, Daniel Mossop, told the committee that cryptocurrencies such as bitcoin have evolved in such a way that they are not currently covered by Australia's anti-money laundering regime.

"It has a lot of characteristics which make it quite attractive for the use for money laundering and terrorism financing," he told the committee. He added that because bitcoins can be sent peer to peer with no centralised monitoring entity, they can be difficult to track.

"They can cross borders, and payments can be made directly to people anywhere in the world," he said. "We can see who's buying [bitcoins] and who's selling them, to a large extent, but we lose visibility of what happens within the system."

The comments come as Australian National University's Research School of Economics director professor Rabee Tourky suggested that the Australian government would be better off issuing its own official digital currency as the country moves towards a cashless society.

"In 10 years' time, there won't be any paper cash," said Tourky. "The big question is what's going to replace it in Australia? Will it be bitcoin? I don't think so. More likely, it will be 'AusBit', an Australian government-issued digital cash.

"It's quite clear that the central bank in Australia is going to have to issue electronic cash," he said.

However, echoing Preston's assertions, Tourky warned that sound infrastructure would need to be built before the government could begin treating digital currencies like cash.

"Before we start discussion [about] things like taxation on digital currencies, we need infrastructure around it," Tourky told ZDNet. "I don't think we'll see infrastructure emerging around bitcoin that will be stable.

"[But] I have absolutely no doubt that in the foreseeable future, we will see a government-issued digital currency," he said.

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