‘Mum and dad’ investors who trade in Bitcoin will escape the tax man, long awaited guidance on crypto-currency has revealed today.
After a number of delays, the Australian Taxation Office today issued several pages of advice on how it intends to treat Bitcoin for tax purposes.
It revealed that all trading of the crypto currency that takes place outside of a business context (by normal individual investors rather than Bitcoin exchanges) will not be assessed as part of an individual’s taxable income.
The ATO has ruled that Bitcoin (and any other crypto currency bearing similar characteristics) is neither Australian money nor foreign currency for tax purposes, and has given it a status akin to ‘barter’.
"Enthusiasts" who "dabble" in Bitcoin trading are unlikely to ever be working with values in excess of the $10,000 threshold for capital gains tax, according to the ATO's senior assistant commissioner Michael Hardy.
The stance places Bitcoin in the same taxation category as traded assets such as art, jewellery, gold or stocks, which do not attract capital gains tax under the $10,000 'personal use' cap, he said.
However, the Tax Office will be keeping an eye on day-to-day Bitcoin hobbyists who stray into a business-like territory, it warned. The same goes for Bitcoin miners, who will start to pay tax on profits once they are deemed to be undertaking the activity professionally.
"Someone who consciously sets themselves up as a Bitcoin mining business, by buying high end computing and incurring internet bills and electricity bills, will need to declare that income," Hardy told iTnews.
"At the same time they can claim these expenses as deductions."
The operators of Bitcoin exchanges will need to declare any profit from the enterprise, and will be expected to charge GST on any Bitcoins sold in Australia.
Hardy confirmed that this meant Australian-based exchanges would be expected to put a 10 percent mark-up on domestic sales.
"All we can do is give this advice. It is up to Australian vendors to figure out their business model," he said.
GST will not need to be applied for sales to overseas Bitcoin buyers.
When it comes to buying and selling real-life goods and services for personal use with Bitcoin, the ATO said any gain or loss from the exchange will also dodge capital gains tax, up to a value on $10,000.
But the tax man will not be as generous to businesses choosing to adopt the notorious currency.
It made it clear that paying employees Bitcoin as part or all of their salary will attract fringe benefits tax if it is processed under a salary sacrifice scheme. It will need to have normal pay-as-you-go deductions applied if not.
Similarly, businesses receiving Bitcoin as payment will need to record the transactions in terms of their value at the time in Australian dollars and declare it as part of their taxable income.
"The value in Australian dollars will be the fair market value which can be obtained from a reputable Bitcoin exchange, for example," the guidance stated.
Hardy said the ATO's stance was "fairly similar" to that of other countries like the USA and Canada.
"Most countries in the world are more or less on the same track."