Representatives of Bitcoin-based businesses and advocates of the crypto-currency have told the first hearing of the Senate's inquiry into digital currencies that Bitcoin should be treated like money, not a commodity, for tax purposes.
The inquiry into digital currencies by the upper house's Economics References Committee was established in October on the initiative of Labor Senator Sam Dastyari.
It followed in the wake of guidance issued in August by the Australian Taxation Office that GST will be charged when businesses supply bitcoins or receive bitcoins in return for goods and services. The ATO's decision was decried by the currency's advocates.
"The interaction between Bitcoin and the domestic tax system has been one of the issues that has been fought in pretty much every jurisdiction that has tried to adopt Bitcoin," Andrew Sommer, a partner at commercial law firm Clayton Utz, told today's hearing.
"The take up rate of Bitcoin can be slowed by the domestic tax treatment, particularly in the GST/VAT space, where GST or VAT is imposed on the acquisition of bitcoins as part of a trading transaction," Sommer said.
"It makes it much more difficult and much less economically viable for me to take my Australian dollars and go and convert them into bitcoin if one eleventh of that transaction is going to be lost in GST at the point that I do that.
"And for consumers that one eleventh cost is a real cost. And that's the consequence of treating Bitcoin like a commodity rather than as a currency."
The ATO's GST ruling "has caused a lot of confusion in the industry," the managing director of ABA Technology, Christopher Guzowski, told the hearing.
"On the one hand it's created clarity because they've created some definition of Bitcoin and classed it as an intangible asset. But on the other hand, putting GST on it has meant that it puts additional friction on transactions and it completely sets it apart from other types of currency and doesn't make it practical to purchase locally."
ABA Technology runs a number of ATM-style machines that allow the purchase of bitcoins.
The bitcoins distributed through the ATMs are sourced from overseas sellers because of the GST issue, Guzowski said. ABA charges a sellers a service fee, which includes GST.
The ATO's guidance has "sent a lot of businesses off shore, and it's putting a brake on the industry," Guzowski said.
The formation of the Australian Digital Currency Commerce Association was prompted by the ATO's initial proposal to treat Bitcoin like a commodity for tax purposes, the association's chairperson, Ronald Tucker, said.
The founding members of the association feared that the proposal "could result in driving [the] digital currency businesses that were emerging in this sector off shore and potentially underground," he told the hearing.
The ATO ruling has meant in some cases Australian Bitcoin-based businesses have shut down, Tucker said.
Bitcoin "really has more qualities that it make it look a lot more like a currency than qualities that make it look a lot more like a commodity," futurist and inventor Mark Pesce said.
Pesce said he expected most overseas jurisdictions would eventually end up treating Bitcoin like a currency not a commodity, potentially forcing Australians to "do things with Bitcoin overseas" if they didn't want to be disadvantaged.
The GST is "designed to tax private final consumption expenditure and when you're converting your Australian dollars into a means of exchange or a store of value, that does not form part of the consumption base," Sommer said.
"Therefore, from a design perspective, if you were going to design a GST today, you would design it to exclude digital currencies. There's no good tax design reason why you would design it to include digital currencies within the tax base."
"It would be preferable for Bitcoin to be treated like a foreign currency," Sommer said.
"So when I take my AUD and I convert it into US dollars there's a fee I pay for that transaction and that fee is for a service and I 've consumed that service — that's properly part of the tax base. But merely shifting the value from AUD to USD does not consume anything and consequently from an ideal perspective you'd want that taken out [from the GST]."
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