ATO’s views on Bitcoins and other cryptocurrencies

In recent months Bitcoins and various other cryptocurrencies have attracted a lot of attention after having a roller-coaster ride in its prices over the past few months, and with more and more cryptocurrency trading platforms becoming available in Australia, it has become easier for Australians to dip into the crypto world. As cryptocurrencies are a new concept, what are the views of the ATO in relation to this new type of virtual currency?

Before we dig deep into this subject, please note that this is an article of the ATO’s views on cryptocurrencies and its relevant tax treatment. We are in no way recommending or advising you to acquire the currencies. This article is not to be taken as financial advice. Information on this article is current as of 11 February 2018.

The ATO has different tax treatments for Bitcoins based on the intention of the purchaser (taxpayer). The same treatment applies to other crypto or digital currencies that have the same characteristics as Bitcoins. In the following article we will use Bitcoin to represent both Bitcoin and any other digital currencies with similar characteristics.

Using Bitcoins for personal transactions

If you spent less than $10,000 to purchase Bitcoins for use in personal purchases (eg use Bitcoin to transact on Internet), then generally there will be no income tax or GST implications, and any capital gain or loss from disposal will be disregarded as it is treated as a personal use asset.

Using Bitcoins for business transactions

If you run a business and accepts Bitcoins as a payment for your goods or services, you need to record the Australian dollar equivalent value received as your ordinary income. Normal GST rules apply if your business is GST registered – ie a GST registered business will remit 1/11th of the Australian dollar equivalent amount received in Bitcoin to the ATO as GST on sale.

When issuing invoices to customers where you are paid in Bitcoins, you need to ensure that your invoice complies with the standard tax invoice requirements, and includes GST payable amount (or sufficient information to the recipient to work out the GST payable amount), all expressed in Australian currency.

If you dispose bitcoin as part of carrying on a business, capital gains tax may apply. You may be able to reduce the capital gain amount by the amount that has been included in your assessable income.

Acquiring Bitcoins as an investment

If the intention of the purchase of Bitcoin is for investment purposes, then capital gains tax could apply. If your intention is to make a profit then the disposal of Bitcoin could be assessable income. If you are not carrying on a business of Bitcoin investment, any profits or losses will not be assessable.

There are different scenarios and therefore different tax treatments to Bitcoin transactions. If you are after an answer to your personal situation, feel free to contact us.