If your organisation uses bitcoins or other crypto-currencies for any business transactions then new guidance from the Australian Taxation Office (ATO) may be useful when completing 2013-14 income tax returns.
Earlier this month the ATO issued a guidance paper and draft tax rulings on how the ATO treats crypto-currencies within the Australian legislative framework.
A crypto-currency is a digital unit of money that uses encryption techniques for regulation of the units and to verify fund transfers. Bitcoin was the first crypto-currency used and became available in 2009. Crypto-currencies operate independently of a central authority.
The ATO does not regard bitcoins as money or foreign currency and therefore is not subject to the same Goods and Service Tax (GST) regulations. However, it is considered an asset in regards to Capital Gains Tax (CGT).
ATO Senior Assistant Commissioner Michael Hardy said in an ATO August 20 press release that bitcoin experts, industry bodies, businesses and other external stakeholders had been consulted with before the guidance paper was drafted.
"People involved in buying or selling bitcoin or other crypto-currencies – whether individuals or businesses – are encouraged to read our guidance. If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us," said Mr Hardy.
The new paper outlines that any transactions that use bitcoins will be treated similarly to barter arrangements and their consequent taxation. Individuals who pay for goods and services with bitcoins for personal use will not have any income tax or GST implications if the amount of the transaction is $10,000 or less.
CGT may apply when the bitcoins are disposed of if the cost of the transaction is more than $10,000.
Businesses will have different tax regulations. Companies will need to make a record of all bitcoin transactions and include them as part of the business's ordinary income.
GST will also apply to a business's bitcoin transactions and GST needs to be charged when you are supplying bitcoins. Likewise, if the business receives bitcoins in exchange for goods and services it may be subject to GST.
If you use crypto-currencies in your commercial agreements or contracts now is a good time to check up on the rules in Australia.