Last week, it was reported that the Australian Taxation Office (ATO) would be delaying its long awaited position paper on bitcoin until after they’d received advice from the Solicitor-General, Justin Gleeson SC.
Understandably, many in the bitcoin community feel that the ATO has been dragging its feet on providing guidance. Further, given that the process of receiving advice from the Solicitor-General can take months, many may end up being caught in limbo come income tax return lodgement time – which could be a much bigger issue.
Does an ATO view exist?
There have been murmurings that the ATO has in fact granted private binding rulings to a few taxpayers in relation to the tax treatment of bitcoin. In fact, CoinDesk reported in March that an ‘Australian bitcoin entrepreneur’ had received a ruling from the ATO regarding the taxation treatment of bitcoin. According to the article, the ruling suggested that bitcoin would (i) be subject to Goods and Services Tax (GST) and (ii) would be taxable on revenue or capital account depending on the activities related to the disposal and acquisition of the bitcoins. In other words, bitcoin would sit squarely in the middle of the Australian tax net (see here for the article).
However, this ruling hasn’t been made public via the ATO’s Private Binding Rulings Register (or it may have been removed), which does cast some doubt as to whether it has been finalised. In fact, up until recently there were no rulings which had been published by the ATO on the topic of bitcoin.
However, this changed a few days ago.
Private Binding Ruling (PBR) Authorisation Number: 1012588747657
A few days ago, a ruling on the Private Binding Rulings Register mysteriously appeared. The subject line of the ruling was ‘Entitlement to a refund under the Tourist Refund Scheme’ (Authorisation Number: 1012588747657) – which seems to obfuscate its relevance to the bitcoin community.
More specifically, the ruling relates to the GST treatment of bitcoin for the purposes of the Tourist Refund Scheme. Although this seems like a fairly narrow piece of tax law, the ruling does go into a fair amount of detail on the issue of GST and the general characterisation of bitcoin.
What is the Tourist Refund Scheme (TRS)?
Before I go any further, it may be worth explaining what the TRS is.
Broadly, the TRS was:
…introduced to provide for the refund of GST that was paid on the supply of goods to entities who take those goods outside Australia. Generally, the goods must be exported as accompanied baggage in the circumstances specified in the Regulations.
Put simply, if you purchase goods in Australia and then take those goods back to another country you may be able to receive a refund on the GST you incurred in purchasing them (provided you meet the relevant conditions).
At this point, you may be asking, ‘why would anyone bother obtaining a ruling on this issue?’ The answer is, in my opinion, likely to be either (i) the amount of bitcoins purchased was extremely large (which is unlikely) or (ii) was designed as a ploy to obtain information from the ATO about their view on bitcoin’s tax treatment (more likely reason). What makes this second option even more likely is the narrow confined nature of the TRS. This means that there is unlikely to be any serious tax ramifications for the taxpayer if the ruling is an adverse one.
Facts of the ruling
The sparse facts of the ruling (which is not uncommon for disclosed PBRs) suggests that the taxpayer came to Australia, purchased bitcoins and then returned to their home country with the newly acquired coins. The bitcoins in question were purchased in Australia prior to the taxpayer’s departure. Further, the bitcoins were sold to the taxpayer in Australia inclusive of GST. Interestingly, the ruling goes on to note that:
The tax invoice specifies the quantity of Bitcoins purchased, the unit price and the total price of the supply including GST … The GST amount is included in the price you paid and the invoice refers to GST being added to the price ‘as per ATO Private Ruling xxxx’.
As a side note, this clearly highlights the fact that a ruling has been granted on the issue of whether bitcoin is subject to GST – with a clear indication that it is. Further, it is probably fair to assume that the ruling was granted to an Australian bitcoin exchange.
Comments on GST treatment
The ruling starts with a fairly detailed overview of what bitcoin is. Overall, it shows that the ATO has invested some time in understanding the protocol, how coins come into existence and how they are transferred.
They then go into detail about the operation of the TRS and the relevant provisions in the GST Act – all very mundane stuff. Specifically, they highlight that the relevant question that needs to be answered is whether bitcoins are ‘goods’ for the purposes of s168-5 of the GST Act (the TRS provisions). Still not very interesting. However, just under this they make an important comment.
A transfer of Bitcoin is a taxable supply under section 9-5 of the GST Act because ‘supply’, as defined in subsection 9-10(1) of the GST Act, means any form of supply whatsoever. On this basis, the supply of the Bitcoins is a supply for the purposes of the GST Act.
The ruling goes on further to state that:
You have provided an invoice that shows that the supply to you was treated as a taxable supply (because it was for consideration, made by the supplier in the course of their enterprise, it was connected with Australia and the supplier was registered).
This seems to suggest that the ATO views bitcoins as being subject to GST. Seemingly, this answers a big question that many have had about the ATO’s GST position on bitcoin in a very clear way.
After this point the ruling becomes even more interesting.
Comments on whether bitcoins are property
As part of the question of whether bitcoins can be claimed under the TRS, the ATO goes on to discuss whether they are ‘goods’ as per the definition in s195-1 of the GST Act – which defines goods to be ‘any form of tangible personal property’.
The path of ‘least resistance’, in determining whether bitcoins are ‘any form of tangible personal property’, would have been to take the whole term ‘tangible personal property’ and to assert that bitcoin is not ‘tangible’ (a fairly simple legal argument to make). However, they start with this statement instead:
‘Property’ refers to specific form of legal relationship that an individual has over an object or resource, whether that object or resource is tangible or intangible in nature. A holder of a property relationship will have an enforceable right to exclude against the rest of the world.
A holder of Bitcoin (the number and related private key) does not have an enforceable right to exclude the world at large from that Bitcoin. The holder merely has the freedom to keep that Bitcoin private from the rest of the world, but no legally enforceable right to do so. Instead, Bitcoin (the number and related private key) is characterised as confidential information to the extent that the holder of Bitcoin can prevent anyone from knowing the related private key.
With the following statement to top it off:
Accordingly, and as previously advised in your private ruling, Bitcoin is not property and is incapable of being privately owned.
Although it may not be immediately clear, this is a very important statement as it clarifies the ATO’s view on bitcoin’s legal characterisation. Specifically, that it isn’t legal form property.
The ramifications of this may be greater than the TRS. Specifically, it may also have an impact on the income tax treatment of bitcoin. In particular, from a capital gains tax (CGT) perspective, it could have been argued that bitcoins should be treated as proprietary property and thus a CGT assets (for those holding them on capital account). This may have resulted in a CGT reflex on the disposal of bitcoins. Based on the comments above, this view is now potentially in doubt. Interestingly, what this view may signal is that the ATO is leaning towards a more ‘radical’ tax treatment of bitcoin – for example that it could be more akin to ‘money’. Which would obviously be an outcome many in the bitcoin community would welcome.
Curiously, the ATO’s characterisation seems to imply that an owner of bitcoins would have no legal recourse if they had their bitcoins stolen or misappropriated. This seems like a strange assertion and I think a court of equity would also find this particularly odd.
The ruling concludes with a discussion of why bitcoin is also not ‘tangible’. As noted above, this is an unsurprising outcome. Specifically, the ATO states that:
From the definitions and explanations above it can be seen that the Bitcoins are intangible rather than tangible and therefore cannot be ‘goods’.
This leaves some wriggle room for them as to the CGT treatment in their opinion paper. However, if anything it may lead to a more complicated position paper as the ATO tries to navigate nuanced legal views of bitcoin’s characterisation.
Also, for completeness, the ATO states in relation to the proposed refund under the TRS that:
…you are not entitled to a refund under the Tourist Refund Scheme for the GST you paid on your acquisition of the Bitcoin wallet and Bitcoins.
Some important things to note
There are some important caveats to the above comments that should be noted.
Private Binding Rulings are abridged and usually heavily redacted versions of the rulings granted by the ATO. In this regard, it is usually not ideal to base a view on the taxation treatment of something via a PBR.
Further, PBRs are based on specific facts. This means that a more general view may look different to the one presented in a ruling – all because of the facts the ATO had to deal with under the ruling request. As the ATO itself notes:
You cannot rely on the rulings in the Register of private binding rulings in your tax affairs. You can only rely on a private ruling that we have given to you or to someone acting on your behalf.
The Register of private binding rulings is a public record of private rulings issued by the ATO. The register is an historical record of rulings, and we do not update it to reflect changes in the law or our policies.
The rulings in the register have been edited and may not contain all the factual details relevant to each decision. Do not use the register to predict ATO policy or decisions.
Regardless, this does start to paint a picture of what the ATO’s guidance may look like when it is released. Now all we have to do is wait for the release of the ATO’s position!
Alan is a former tax advisor. He now runs a startup and also provides strategic advisory services on complex regulatory issues and crossborder transactions. He can be reached at [email protected].
This article does not constitute legal, accounting or tax advice.