The Australian Taxation Office (ATO) has released its draft rulings on its treatment of crypto-currencies such as Bitcoin, including its determination to treat these differently to money and foreign currency.

The clarification follows growing buzz around the virtual currency, which has been adopted by a handful of, mainly online, retailers. Few major retailers have jumped on the bandwagon, however, and in April Amazon said it has no plans to start accepting Bitcoin.

For tax purposes in Australia, the ATO says Bitcoin and its counterparts will be treated similarly to non-cash bartering, with limited tax consequences for individuals transacting in small amounts.

However, businesses trading in Bitcoin or similar may face goods and services tax (GST), capital gains or fringe benefits tax.

“Generally, there will be no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in Bitcoin (for example, acquiring personal goods or services on the internet using Bitcoin),” the ATO says.

The ATO will disregard capital gains from Bitcoin purchases when the Bitcoin cost is less than $10,000.

But Bitcoin users must retain proof of their transactions, including:

1. The transaction date,
2. the amount in Australian dollars (which can be taken from a reputable online exchange),
3. what the transaction was for, and
4. who the other party was (even if it’s just their Bitcoin address).

The rules become more complicated for business Bitcoin users – the ATO has provided detail on:

• Bitcoin transactions for goods and services,
• salary payments using Bitcoin,
• mining Bitcoin, and
• Bitcoin exchange transactions.

Bitcoin transactions for goods and services – receiving Bitcoin

• Businesses must record Bitcoin value in Australian dollars as part of ordinary income,
• GST may be charged,
• “If the supply of the goods and services was a taxable supply, the business will be able to claim input tax credits on the GST charged on the bitcoin they received as payment.”

Bitcoin transactions for goods and services – paying with Bitcoin

• Purchases on business items are entitled to deductions,
• GST is payable, calculated on the market value of the goods or services, and
• There may be capital gains tax consequences.

Salary payments using Bitcoin

• If it is considered a valid salary sacrificing arrangement, the employer is subject to the provisions of a fringe benefits tax assessment, and
• if it is not considered a valid salary sacrificing arrangement, the employer must meet pay as you go (PAYG) tax as per a normal salary.

Those interested in information on mining Bitcoin and Bitcoin exchange can visit the ATO web page on cryptocurrencies.

Industry response

Australian Digital Currency Commerce Association chair Ron Tucker told the ABC that members’ dissatisfaction with the ATO’s proposed rulings would drive the industry offshore.

“The way they’ve chosen to interpret how it should be applied is unfortunately very stifling for emerging Australian digital currency businesses and the industry as a whole.”