Digital currencies such as Bitcoin and Ethereum will no longer be subject to double taxation if legislation introduced last week into the Federal Parliament is successful.
Treasurer Scott Morrison says the proposed change will “further cement Australia’s reputation as a global Fintech centre”.
The legislation follows a promise the federal government made in the 2017 Budget, when it pledged to exempt purchases of digital currencies from the goods and services tax (GST) from July 1.
The promise followed on from a statement by the Treasurer in March 2016, committing the government to addressing the issue.
Under current arrangements, digital currencies are considered to be intangible property for the purposes of the GST, which can mean that people who use digital currencies to make purchases effectively pay the tax twice: first when purchasing digital currency, and again when using it to exchange other goods and services that are subject to GST.
If the proposed amendments are passed, supplying and purchasing of digital currency would no longer be subject to GST. This rule, however, is subject to one major exception.
If the supply of digital currency is made in exchange for money or digital currency — for example, supplying Bitcoin tokens in exchange for Ethereum tokens — this transaction will still be subject to GST.
That means that if you’re acquiring digital currency, you won’t be charged GST on this transaction, but if you are supplying digital currency in exchange for money or other digital currencies, GST will be charged on this transaction.
The legislative amendments also provide clarity on the definition of digital currency. In essence, digital currency must be made up of interchangeable digital units; these units need to be generally available to the public for use as consideration for a transfer of goods or services; and these units must only be valuable as a medium for exchange, according to the legislation’s explanatory material.
This definition encompasses most of the major cryptocurrencies, including Bitcoin and Ethereum.
Australia emerging as a blockchain leader
Danielle Szetho, chief executive of FinTech Australia, say the proposal is “a very long awaited piece of legislation to enter parliament” and was one of FinTech Australia’s first recommendations to the government.
“Australia is emerging as leader in the blockchain and digital currency space. This recognition of digital currency players is necessary to make sure the industry is well trusted by consumers,” she says.
“It shows the government is quite keen to support the industry through carefully considered collaborative legislation.”
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Szetho says the definition in the legislation is agreeably broad, and “covers most blockchain based digital currencies”.
“This is important because it effectively legitimatises the industry, builds consumer confidence and trust,” says Szetho.
“Startups looking to work with this tech and in areas enabling consumers to use digital currency can now point to this legislation and say, ‘We are regulated by the government, we are legitimate’.”
This legitimacy will have important flow-on for startups, because it creates “a lot more certainty around transactions that are taken [via the blockchain]” in a time when industry players are looking for more regulation of the space.
Szetho believes that going forward, the government must continue to work with the Australian fintech community, “being careful to balance consumer protection”, while also allowing startups room to move in the digital currency space, to allow the industry to “innovate and thrive”.
“Collaboration is absolutely critical to make sure that regulation is done in an even-handed, not over burdensome manner,” she says.
The legislation was introduced into the House of Representatives on Thursday, and still needs to be approved by both houses of parliament and receive royal assent before becoming law. If passed, the legislation will apply from July 1, 2017.
Taxpayers affected by the measures may lodge their Business Activity Statements in accordance with current law, or with accordance to the announced measures, while waiting to see whether this bill is passed, according to the Australian Taxation Office.
Once the outcome of the proposed amendments is known, startups may need to review their GST position back to July 1, 2017; if the law is passed, startups that didn’t anticipate these changes will be required to lodge requests for an amended assessment.
Startups that anticipated this law would be passed and acted in accordance with this won’t have to take any further action, according to the ATO.