On 14 September 2017, the government introduced to the Parliament the Treasury Laws Amendment (2017 Measures No. 6) Bill 2017 (the Bill) that includes amendments to the A New Tax System (Goods and Services Tax) Act 1999. The Government announced these changes in the 2017 Budget on 9 May 2017.
The Bill amends the GST law to ensure that supplies of digital currency such as Bitcoin receive equivalent GST treatment to supplies of money, particularly foreign currency.
The Bill is a response to the concerns that the current Australian Taxation Office (ATO) view on the GST treatment of Bitcoin in GST Ruling GSTR 2014/3 effectively creates ‘double taxation’.
Under GSTR 2014/3 the ATO view is that digital currency is intangible property for GST purposes. This means that:
- consumers who use digital currencies as payment can effectively bear GST twice: once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST; and
- businesses may also bear double GST on digital currency used as payment for goods or services supplied and then exchanged for Australian currency (although a GST registered business should be able to claim an input tax (GST) credit relating to the second GST liability).
The proposed amendments
Under the GST law a supply of money is a ‘supply’ only in the circumstance where an exchange of money for money occurs (for example, a foreign currency conversion). In general, those supplies are ‘input taxed’ (that is, no GST liability arises).
The Bill extends the definition of supply in the GST Act to ensure that the provision of digital currency in exchange for money (that is, Australian or foreign currency) or another digital currency, is a ‘supply’. The Government intends to amend the GST Regulations to so that generally those supplies of digital currency will be input taxed (as is the case with, for example, an exchange of foreign currency for Australian currency).
While a GST liability will still arise on the supply of taxable goods and services in return for digital currency, a GST liability arising on the provision of the digital currency the supplier, or on the exchange of digital currency to Australian currency, will no longer occur. The Bill also ensures that GST will no longer apply on purchases of digital currency.
Effectively, under the proposed amendments GST will be borne once and not twice.
The income tax law?
The Bill only applies to the GST law. For purposes of the income tax law, the ATO in Taxation Determination TD 2014/25 takes the positions that Bitcoin is not a ‘foreign currency’ as defined in the Income Tax Assessment Act 1997.
Whether the ATO changes its position if the Bill receives assent, or similar changes are made to the income tax law, is an unanswered question.
Date of effect
If passed and assented to the amendments apply to supplies and payments made on or after 1 July 2017.
In relation to the period between 1 July 2017 and the Bill receiving assent, the ATO has an administrative practice that taxpayers may lodge business activity statements in accordance with either the current GST law or in accordance with the announced changes (subject to that once the outcome of the Bill is known, taxpayers will need to review their GST position back to 1 July 2017).
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