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By Peter Hill
The Australian government introduced a bill into Federal Parliament Sept. 14 to put into effect measures to fix a longstanding problem with how the country’s goods and services tax rules treat digital currencies such as Bitcoin.
Treasury Laws Amendment (2017 Measures No. 6) Bill 2017—which exempts the purchase of Bitcoin and other digital currency as taxable supplies, removing double taxation when the currency is used to buy a taxable supply—has been several years in the pipeline.
The Australian Productivity Commission noted in 2015 that the use of Bitcoin had almost doubled between 2013 and 2015, and that 6,500 businesses worldwide—around 200 in Australia—were accepting Bitcoins. At the same time, it noted at least 600 digital currencies worldwide, with the crypto-currency Bitcoin accounting for the majority of daily trades, which was also the case in Australia.
Until now, GST rules haven’t recognized emerging digital currencies as a new form of money. This has acted as a disincentive to the fin-tech sector which, according to the Federal Treasurer Scott Morrison Sept. 14, has “enthusiastically supported” the new measures.
As announced in May at the 2017-18 Federal Budget, the amendments will apply retrospectively to relevant transactions and supplies made on and after July 1, 2017, once passed by both houses of Parliament.
The Australian Taxation Office issued a public ruling in December 2014—GSTR 2014/3—advising that Bitcoin wasn’t money for the purposes of the GST regime, despite submissions to the ATO that a contrary view could be taken.
At that time, the Senate Economic References Committee was already holding an inquiry to examine the best way to define “digital currency” within Australia’s regulatory frameworks, to “support innovation and the needs of the growing Australian digital currency industry.”
The effect of the ATO’s ruling was that double GST was attracted to transactions where payment was by means of digital currency—on the purchase of the currency and also when the currency was used to buy goods and services subject to GST.
Following inquiry, the Senate Committee recommended in an August 2015 report that the government introduce legislation to treat digital currency as money for GST purposes and thus remove the potential for taxation to arise on its purchase. The following month, in a separate inquiry report, the Productivity Commission recommended the same change.
The current bill is the means whereby the government is meeting its May 2017 promise to do so.
To make the amendments work, a definition of “digital currency” was required to be inserted into s 195-1 of “A New Tax System (Goods and Services Tax) Act 1999’s” dictionary. Additionally, the current exclusion in subsection 9-10(4) of “money” from the meaning of a “supply” had to be revised to add digital currency to that exclusion.
Matthew Cridland, indirect taxes partner at K&L Gates, Sydney, told Bloomberg BNA in a Sept. 15 email that he thinks “the Government has probably struck the right balance … It is not limited to cryptocurrencies built on blockchain technology, such as Bitcoin. But it also excludes items such as reward points and pretend currencies within games/virtual worlds.”
Cridland also believes that the alignment of the GST treatment of payments with money with that of digital currency “was the simplest and best approach to deal with the double taxation issue.”
Melbourne-based Head of Policy at CPA Australia, Paul Drum, said in a Sept. 15 email that “the changes are welcome. Not only will they remove double taxation but they’ll help ensure Australian entrepreneurs and businesses can compete more equally in global markets, so it’s good news for our growing fin-tech sector.”
Michael Barnett, indirect taxes director at PwC, Melbourne, said in a Sept. 15 email that overall, “the removal of taxation on digital currency is a positive change” and that “quite wisely the Government opted for a principles-based definition” of digital currency.
Barnett expects that the government’s approach will find “overwhelming support from industry participants as it provides for greater flexibility, is not limited to the current architecture of distributed ledger technology, is attractive to new entrants, and will reduce administration costs.”
Drum said the proposed amendments will provide “much-needed certainty,” which was also welcome “given some other economies have stated that digital currencies will not be accepted as a means of exchange at all.”
Cridland said that under the current GST regulations, foreign exchange transactions are input taxed, and the associated apportionment issues “are complex and usually the domain of large financial supply providers, such as banks, life insurance companies and managed funds.”
He added that amendments to the GST regulations to align the new treatment of digital currency transactions with foreign exchange transactions are therefore required to avoid exposing the fin-tech sector to the costs of complying with the current regulations affecting cross-border digital currency transactions.
In a memorandum accompanying the bill just introduced, the government acknowledged this problem and said it would introduce appropriate amendments to the GST regulations, with the same start date of July 1, 2017.
Barnett said “periodic review of the [new] law will be crucial to ensure that definitions remain robust and take account of new and emerging forms of digital currencies.”
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The Treasury Laws Amendment (2017 Measures No.6) Bill 2017 and its accompanying Explanatory Memorandum are available at http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5972%22
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