The Australian Taxation Office has dealt a blow to businesses capitalising on the growth in crypto-currencies like Bitcoin by finding virtual currencies should not be treated as money.
The move has triggered a push back with digital currency advocates warning of reduced competitiveness, weakened innovation and a further assault upon Australia’s struggling start-up sector.
In a draft ruling, the ATO this week found the supply of the unregulated online currency Bitcoin should be treated much like a barter transaction. While the consequences for consumers are not significant, business owners are set to lose out with Bitcoin transactions attracting a so-called “double whammy” GST payment.
The additional impost is being condemned for saddling businesses with additional red tape and new obstacles requiring the possible renovation of already well-established business models.
The GST double whammy:
As usual, businesses will charge the normal 10 per cent GST on services provided in return for Bitcoin. But, in an extra impost, businesses will also have to pay a 10 per cent GST on the value of the Bitcoin received when it is converted into normal currency.
BitPOS founder and President of the Bitcoin Association of Australia, Jason Williams told Dynamic Business the ATO draft ruling was “disappointing”.
BitPOS takes Bitcoin payments received by businesses and sells them on an exchange within a period of about 60 seconds. It charges a flat fee of one per cent for the transactions.
However, under the draft ATO ruling, BitPOS would now be forced to charge GST on the total value of the transaction. “We’ll have to charge GST on the entire supply,” Mr Williams said. “It’s disappointing and short sighted.” Unless a workaround is devised, the change effectively penalises business twice for accepting Bitcoin.
Chairman of the Australian Digital Currency Commerce Association, Ron Tucker, highlighted the difference with foreign currency exchanges. He told Dynamic Business that foreign currency exchanges did not attract GST on the value of the transaction. The GST only applied to the small service fee.
“With other foreign currency exchanges you wouldn’t pay GST on the value of what you are trading or exchanging – just the service fee,” he said. “You get off the plane at the airport and want to change cash over. The booth charges 5 or 7 per cent in a service fee and you only pay the GST on that.”
“What we’ve done here with the ATO ruling is it’s the first domino for Australia, but it’s fallen the wrong way and taken us two or three steps back against what international trends are currently indicating. And, again, that makes it just that much harder. It ties the hands of industry and sends business off shore and Bitcoin underground potentially.”
Mr Tucker also warned the step would have an adverse impact on start-ups seeking to make headwaves in the disruptive digital currency sector in Australia.
Impact on consumers:
Those who already possess Bitcoin and use it to make run-of-the-mill purchases will not feel any adverse impacts from the draft ruling. However, Mr Tucker said the ATO move would now make it more expensive for people to buy into Bitcoin. Those who have made a sizeable investment in Bitcoin and are disposing of that investment will also need to pay capital gains tax.
