Bitcoin and cryptocurrencies should be recognised as normal currency for GST purposes, not an intangible asset as classified by the ATO, according to a Senate committee.
The Senate economics references committee today tabled its report into digital currencies like Bitcoin and their use in Australia following ten months of consultation.
The inquiry focused on options for regulation of digital currencies, their potential to disrupt the financial sector, and the use of anonymous currencies for criminal ends.
Importantly, the committee was also tasked with looking into the ATO's August 2014 guidance that Bitcoin and others would be treated the same as the tax office treats non-currency assets.
It meant non-commercial trades would only attract a capital gains tax bill when they meet a $10,000 threshold.
But it also meant individuals and businesses would be charged GST when buying digital currency, and businesses would charge GST when supplying it.
Digital currency advocates raised concerns that by treating Bitcoin transactions as barter arrangements, GST would be applied twice in one transaction - to the goods/ service being provided and also to the supply of the digital currency used as payment.
While the Bitcoin community accepted its obligation to pay capital gains tax on investment profits, the senate committee said, its point of contention to the ATO ruling was that the industry was being rendered uncompetitive because of the additional GST being levied on it.
The committee therefore today recommended Bitcoin and its ilk be recognised as a regular currency.
"The current treatment of digital currency transactions as barter transactions creates a double taxation effect that has placed an additional burden on Australian digital currency businesses," it wrote.
"The committee received evidence from the ATO advising that amendments to both the legislation and regulations would be necessary in order to change the current GST treatment of digital currencies."
As such, the government should amend the definition of money in the GST Tax Act to include digital currencies, it said.
Following 48 submissions from the likes of Westpac, the RBA, AFP and ATO, the committee said additional investigation would be needed before Bitcoin can be fully regulated in Australia.
It recommended further inquiry into the treatment of Bitcoin for income and fringe benefits tax as well as the establishment of a 'digital economy taskforce' to investigate how Bitcoin is being used and its associated risks.
The committee's recommendation - should it be actioned - would bring Australia in line with the United Kingdom, which recently exempted digital currency from its value-added tax (VAT).