Too soon to change tax treatment of Bitcoin, Treasury says

ATO acknowledges double tax issue for crypto-currency

The Treasury has been monitoring Bitcoin in Australia both from a regulatory perspective and a tax perspective and believes that it is too soon to change taxation laws to provide a boost to local Bitcoin-based businesses.

"I think we will continue to assess the environment, but I would stress that it is an industry in its infancy, so I think to jump in and suggest that there should be changes to the tax law to accommodate it is a little bit early in that process," Kate Preston, general manager of the Treasury's Small Business Tax Division, said.

Treasury and Australian Taxation Office officials today fronted the Senate's inquiry into digital currencies, which is looking at the regulatory environment governing the use of Bitcoin and other crypto-currencies.

"I think the Treasury view would be [that] taxation is not where you start, where there's a lack of a sense from the Tax Office that the current laws aren't working," Preston said.

The establishment of the digital currencies inquiry followed the issuing last year of a set of draft ATO rulings, which have since been finalised, on the treatment of Bitcoin.

Under Australia's existing tax regime, Bitcoin is more akin to a commodity than a currency, the ATO ruled.

The decision has upset Australia Bitcoin businesses, representatives of which at an earlier hearing of the inquiry said that it could drive the nascent industry offshore into other, more-accommodating jurisdictions.

At the heart of the issue is the GST burden incurred by the use of Bitcoin. Under the ATO's ruling, businesses must charge GST when supplying the crypto-currency and when being paid in Bitcoin.

"We recognise in some commercial circumstances there can be double taxation," Michael Hardy, ATO senior assistant commissioner, told today's hearing.

"It's a feature of barter transactions," Hardy said.

"This isn't confined just to Bitcoin or crypto-currency: It's a feature of barter transactions and effectively a Bitcoin transaction in the tax environment is a barter transaction; so it's swapping a sheep for a goat, if you like.

"Barter transactions of course are not very common and so it perhaps hasn't been a topical issue, but they perhaps became more common with the visibility and excitement [of] Bitcoin transactions."

"The Tax Office came to this issue with the approach of: It's happening — use of bitcoin transactions is happening — and we need to provide some certainty about what is the tax issues and the tools we had available to us with existing law," Hardy said.

"That's the approach we took — [it] was to understand the technology, understand the business models, see if existing law could or did apply and then to provide the advice. We took the approach of being as collaborative as possible — we worked with experts, industry associations, [and] banking/finance/tax accounting professionals as well."

Hardy reiterated comments in the ATO's written submission to the inquiry that at this stage the scope of Bitcoin-based financial activity in Australia is relatively low.

The submission, published last year indicated that whether crypto-currencies should be treated as money was a policy question for government.

"Our own monitoring hasn't indicated that there's a particularly high non-compliance risk from Bitcoin transactions," Hardy said today.

"Our sense is that the business community, if not necessarily in full agreement with the advice that we've provided on the operation of the existing law, have at least appreciated the degree of certainty we've provided."

The Senate inquiry is being conducted by the Economics References Committee. The inquiry was due to report this week, but on Monday the Senate extended its reporting deadline to 10 August.

Follow Rohan on Twitter: @rohan_p

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