Digital currency and GST

By Jim Bulling and Michelle Chasser

The application of consumption tax to digital currencies varies between countries. The UK and countries in the EU have made Bitcoin exempt from such taxes, while other countries such as Japan, Singapore, Canada and Australia treat digital currencies as intangible property which is subject to the tax.

In Australia, this has resulted in consumers paying Goods and Services Tax (GST) when they exchange money for digital currencies and again when they use the digital currency to make a purchase. Treasury has released a discussion paper on the application of GST on digital currencies. While the proposals are very different technically, they both result in removing the double taxation.

One proposal is to treat digital currency exchange as input taxed similar to other financial supplies like derivatives. Generally, this means that GST is not paid on the exchange of money for digital currency and the digital currency supplier cannot claim any input tax credits. However, purchases still incur GST.

Another proposal is to include digital currency in the definition of money. As a result, digital currency would be treated the same way as foreign currency for GST purposes.

Key to any changes is the identification of digital currencies. Treasury has made the following proposals.

  1. Creation of a principles based definition of ‘digital currency’. The challenge with this approach is avoiding unintended consequences such as inclusion of other synthetic financial instruments which share some similarity with digital currency.
  1. Empowering a decision maker to specify and list individual currencies that would be digital currency for the purposes of GST regulation. This approach may result in established digital currencies obtaining an advantage while new digital currencies wait to be added to the list.

Treasury is seeking submissions by 3 June 2016. The discussion paper can be found here.

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