'Relatively low' fiscal risk with Bitcoin in Australia: ATO

Although Bitcoin is the only crypto-currency with market strength in Australia, it still represents a "relatively low" fiscal risk according to the Australian Taxation Office.

The nominal value of Bitcoin worldwide is around $5.96 billion, compared to Australia's 2012-13 GDP of $1.5 trillion, the ATO notes in a submission (PDF) to the Senate's digital currencies inquiry.

The ATO in August issued a handful of draft public rulings on the treatment of bitcoins.

"The key elements of the ATO’s preliminary views are that bitcoin is a form of intangible property, is not money or currency, and its supply is not a financial supply for GST purposes. Its use is akin to barter," the ATO's submission to the inquiry states.

The decision to treat bitcoins as intangible property — and to subsequently make it eligible for GST when converting from a conventional currency to Bitcoin — instead of a form of money has drawn ire from Australia's nascent Bitcoin business ecosystem.

The ruling means that individuals will be charged GST when they purchase bitcoin, and businesses "will charge GST when they supply bitcoin and be charged GST when they buy bitcoin," the ATO's submission notes.

At the first hearing of the digital currencies inquiry, held on 26 November, the crypto-currency's advocates said that the ATO's ruling was acting as a brake on Bitcoin-related businesses in Australia.

Some Australian Bitcoin businesses have already closed down or relocated overseas, the chairperson of the Australian Digital Currency Commerce Association, Ronald Tucker, told the hearing.

The ATO's submission to the inquiry notes that other crypto-currencies, such as Litecoin, would be subject to the same rules as Bitcoin.

"The ATO’s views were developed by an impartial consideration of the existing law and without any pre-conceived preference to whether Bitcoin should, or should not, be regarded as money for tax purposes. Issues associated with potential consumer risk, tax compliance risk, administrative difficulty, and potential criminal use were not determinative in settling the ATO’s view," the submission states.

The tax office said that submissions made to it in response to the draft ruling had generally been in favour of treating Bitcoin as a currency for income tax and GST purposes, and as a financial supply for GST purposes when it is converted to Australian dollars.

"Whether bitcoin or other crypto-currencies should be treated as ‘money’ or ‘currency’ is a question of policy," the ATO states.

"In relation to compliance activity, assuming the ATO does not change its position on the law, our intended approach would be that although our view may have application for periods prior to publication, the ATO will not generally apply compliance resources to past year cases in relation to taxpayers who have behaved in a bona fide manner and made a genuine attempt to understand and satisfy their obligations," the submission states.

Follow Rohan on Twitter: @rohan_p


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