The Australian Tax Office (ATO) has finally delivered guidance on the tax treatment of Bitcoin and other crypto-currencies.
And just in time for people to complete their 2013-14 income tax returns.
Under the guidance paper and rulings, bitcoin transactions are treated like barter transactions with similar tax consequences.
Generally, there will be no income tax or GST (Goods and Services Tax) implications for individuals if they are not in business or carrying on an enterprise and they pay for goods or services in bitcoin.
Where an individual uses bitcoin to purchase goods or services for personal use or consumption, any capital gain or loss from disposal of the bitcoin will be disregarded as a personal use asset provided the cost of the bitcoin is $10,000 or less.
Assistant Commissioner Michael Hardy says the tax office consulted extensively with bitcoin experts, businesses, industry bodies and others to explain the obligations of bitcoin users.
“People involved in buying or selling bitcoin or other crypto-currencies, whether individuals or businesses, are encouraged to read our guidance,” he says.
“If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us.”
Individuals who use bitcoin as an investment may be subject to capital gains tax rules when they dispose of it, as they would for shares of similar assets.
Businesses will need to record the value of bitcoin transactions as a part of their ordinary income. They must also charge GST when they supply bitcoin and may be subject to GST when receiving bitcoin in return for goods and services.
There may be fringe benefit tax consequences for businesses using bitcoin to pay employee salaries.
Matthew Cridland, a Partner at law firm DLA Piper, says the ATO’s guidance confirms that it will expect taxpayers to retain at least basic details concerning bitcoin transactions.
“This will be particularly relevant for suppliers who accept bitcoins as consideration for a taxable supply that is subject to GST,” says Cridland.
“Generally speaking, suppliers are required to issue tax invoices showing any GST payable in Australian dollars. The ATO’s guidance indicates that the market value of the bitcoins received could be determined by reference to the exchange rates quoted on a reputable Bitcoin exchange.”
The use of Bitcoin has been spreading in Australia with Melbourne having the most vendors offering to take the currency.