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Tax Treatment of Crypto-Currencies: Bitcoin

Bitcoin is a crypto- currency that roughly sits at 1% of the size of the US economy. The currency does have tax considerations, with a growing application of these to it as it grows in value.

Bitcoin can be treated very differently within tax depending upon the form of interaction you have with it. This can vary from being treated as an investment for capital gains taxing or treated as a fringe benefit. We have attempted to provide the most common forms of interaction in this blog for those of you who interact with the crypto-currency.

Bitcoin is assessed within tax generally as an asset. The ATO does not take it as a currency. As such transactions with Bitcoin need to be recorded under a barter arrangement. The required details for each barter transaction include:

  • the date of the transactions;

  • the value in Australian dollars (according to a reputable online exchange);

  • what money, goods or services where traded;

  • the other party involved within the trade (the best available information for this may be their Bitcoin address);

Using Bitcoin for Personal Transactions

Bitcoin for personal transactions currently does not have GST applied. Where the value of the Bitcoin being used is less than $10,000, as a personal use asset, the capital gains on disposal of the Bitcoin for any goods, services or consumption will be disregarded.

Where salary sacrifice has been used to receive Bitcoin it will be treated as a fringe benefit under the Fringe Benefits Tax Assessment Act. In absence of a valid salary sacrifice agreement, the remuneration is treated as normal salary or wages. While treated as a normal salary or wage the employer will need to meet traditional obligations as a PAYG (pay as you go).

Using Bitcoin for Business Transactions

For business transactions Bitcoin is treated differently to personal transactions. Receiving Bitcoin for goods or services will require the same process as receiving a barter transaction with non-cash. This means that the Australian Dollar value at time of transaction will need to be recorded (as per above this needs to be based upon a reputable online exchange which is worth noting the name of your source).

When receiving Bitcoin, in leu of cash for goods or services provided, a GST charge may be applied. If good or services are supplied that are a taxable supply, the business will be able to make claims for input tax credits on GST. This amount will be based upon the Bitcoin received as a payment.

Capital Gains

When ‘disposing’ of Bitcoin as part of your business there will likely be capital gains tax applied. The capital gains however is reduced by any amount which has been included in your assessable income as an ordinary income.

Mining Bitcoin

Where you are in the business of mining Bitcoin, any income that you derive from the transfer of the mined Bitcoin to a third party would be included in your assessable income. Any expenses incurred in respect to the mining activity would be allowed as a deduction. Losses you make from the mining activity may also be subject to the non-commercial loss provisions.

Bitcoin held by a taxpayer carrying on a business of mining and selling Bitcoin, will be considered to be trading stock. This requires you at the end of each income year to bring to account any Bitcoin on hand.

Any Bitcoin supply mined for the furtherance or course of your enterprise will have GST payable. Acquisitions made that allow you to practice your Bitcoin mining enterprise may result in input tax credits being available.

Disposing of Bitcoin acquired for investment

Disposing of Bitcoin (generally the sale of bitcoin for cash) may be classified as an investment. If you have acquired Bitcoin as an investment, without carrying on a business of Bitcoin investment, you will not be assessed on any profits resulting from the sale or allowed any deductions for any losses made. If your transactions amount to a profit-making undertaking or plan then the profits on disposal of the Bitcoin will be assessable income. Capital gains tax may apply to personal transactions.

Note: There are no GST consequences where the Bitcoin is not supplied or acquired in the course or furtherance of an enterprise you are carrying on.

If you seek more information on how your use of Bitcoin or future use may impact upon your tax, The Great Bean Counters as always are hear to offer assistance

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