The Government will align the GST treatment of digital currency with money.
The treatment of digital (or crypto) currency for GST purposes has been hugely challenging for the Government. Digital currency refers to things such as bitcoin, although there are apparently over 600 other currencies available. ATO rulings released in December 2014 set out the ATO view that bitcoin is neither money nor a foreign currency and the supply of bitcoin is not a financial supply for GST purposes. In its view, transacting with bitcoin is akin to a barter arrangement, with similar GST consequences.
The result is that trading with bitcoin can give rise to a form of double taxation for GST purpose – once on the purchase of the digital currency and again on its use in exchange for other goods and services subject to GST.
There have been three significant developments up to this point which deal with the treatment of digital currencies:
- a Senate Economic References Committee report in 2015;
- the Government’s “Backing Australian FinTech” statement in March 2016; and
- a Government discussion paper in May 2016.
Presumably the proposed changes are a result of these developments. The changes will be designed to ensure that purchases of digital currency are not subject to GST. The Budget papers do not give specific details about how this will be achieved
The measure will come into effect from 1 July 2017. It will have “a small but unquantifiable decrease in GST collections”. In other words, less GST will be collected – but not much.