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In 2013, the price of Bitcoin, the most popular and valuable of all the crypto – or digital – currencies, exceeded the psychological barrier of $100 for the first time. Since then, crypto-currencies have been in the spotlight. Bitcoin itself has been on a whirlwind journey, increasing in value from approximately US$755 on 1 December 2016 to just under US$20,000 a year later, only to crash down to around US$8,000 in the space of months.

Crypto-currencies are essentially very complex algorithms that allow peer-to-peer payments without the involvement of financial institutions. Their unique nature raises a number of challenges for revenue authorities around the world as to how they should be taxed, if at all.

Australia started considering this issue in 2013, when the Reserve Bank of Australia (RBA) released a briefing paper discussing some policy considerations with respect to digital currencies. These included payment systems, consumer protection, taxation, anti-money laundering and counter-terrorism financing matters. The paper was timely. Various Australian businesses embraced Bitcoin and started accepting it as a method of payment. Internationally, Microsoft, Virgin Galactic, Overstock and Paypal, among others, were already offering their customers such an option. A year later, the Australian Taxation Office (ATO) released a series of public rulings that considered tax implications of digital currencies, including whether they constitute property, foreign currency or money.

Property or money?

According to the ATO, Bitcoin should be considered as property for income tax purposes. This is because it has proprietary characteristics that are explained by its relationship as a digital representation of value and the bundle of rights ascribed to its holder.

The most important of these rights is the right of control over Bitcoin in one’s digital wallet. This is consistent with the common law definition of property: a legal relationship with a thing that is characterised by the degree of power and control over it. For these reasons, Bitcoin is considered to be a capital gains tax (CGT) asset, the definition of which includes, among other things, “any kind of property”. By implication, the provision of Bitcoin to an employee with respect to their employment would be a property fringe benefit.

The ATO further concluded that the use of Bitcoin was not widespread enough to be regarded as money, nor was it an accepted medium of exchange. This is despite Bitcoin possessing the requisite features of ‘money’; that is, it can be used: 1) to perform transactions; 2) as a unit of account; and 3) a store of value. As a corollary, Bitcoin could also not be a foreign currency because it was not recognised as ‘money’ by any foreign government.

A number of overseas jurisdictions, such as the USA, New Zealand and Canada, have adopted similar characterisations of crypto-currencies for income tax purposes – at least for now, as they continue to monitor future developments.

Problem of double taxation

In Australia, the characterisation of Bitcoin as property for Goods and Services Tax (GST) purposes has caused the most angst in the industry. Under the GST Act, a 10% tax is imposed on taxable supplies that may include, for example, supplies of goods, services and financial supplies. However, transactions that involve an exchange of money are exempt. As a result, depending on the status of the transacting parties, there is a potential for double taxation.

Thus, businesses accepting Bitcoin as payment had a GST liability upon conversion of Bitcoin into Australian dollars, on top of the liability with respect to the provided goods and services. In addition, some digital currency exchanges were at a competitive disadvantage. Overseas competitors were able to supply Bitcoin to Australian consumers GST-free, as they were not connected with the indirect tax zone. For example, Coin Jar, the biggest Australian Bitcoin exchange at the time, explained that its relocation to the United Kingdom was motivated by the double tax issue. The UK afforded digital currencies similar treatment to money, which meant that the value-added tax (the UK’s equivalent to the GST) did not apply to transactions involving crypto-currencies.

The FinTech (financial technology) industry started lobbying for reform as a result of the growing acceptance of digital currencies as a method of payment. This eventually prompted an Inquiry into Bitcoin and digital currencies by the Senate Economics Reference Committee in 2014. In 2015, it produced a report that highlighted the double taxation issue and recommended amending the GST Act to remedy it. Similar recommendations were expressed by the Productivity Commission in its 2015 ‘Business Set up, Transfer and Closure’ report. These reports demonstrated that, in order to have a competitive FinTech sector and to bolster innovation, Australian law had to change.


A significant development in Europe provided further incentive for reform in Australia. It involved a decision by the Court of Justice of the European Union that, in essence, held that transactions in non-traditional currencies (that is, those currencies that have been accepted by the parties as an alternative to legal tender) had no purpose other than to be a means of payment. It meant that Bitcoin was one such non-traditional currency and, therefore, was exempt from the value-added tax in the EU.

Australia made progress in 2016, when the Government released its Backing Australian FinTech statement that supported the removal of double taxation of digital currencies. It also released a discussion paper on the GST treatment of digital currency that, among other things, reviews approaches to taxation of digital currencies in other jurisdictions and suggests solutions to address the double taxation issue.

Finally, legislative amendments rectifying the double-tax issue were introduced in late 2017. Broadly, the effect of the amendments are that supplies and acquisitions of digital currencies, like supplies and acquisitions of money, are excluded from the definition of ‘supply’, unless made in exchange for other money or digital currency. A definition of digital currency was also inserted in the GST Act.

These amendments were welcomed by the FinTech sector generally and digital currency start-ups in particular – especially in light of the fact that by the end of 2017, it was possible to buy luxury property in London, post bail or pay utility and other bills with Bitcoin.

In line with the amendments, the Australian Securities and Investments Commission (ASIC) released guidance regarding initial coin offerings. These are a form of fundraising where, instead of issuing shares to investors, start-ups offer tokens that can be connected with the proposed service of product. They are designed to make it easier for start-ups to raise funds.

Other positive steps were taken on the money-laundering front, with the Australian Transaction Reports and Analysis Centre (Austrac) now requiring digital currency exchanges to have a registration and report transactions over $10,000.

International developments

Internationally, the issue of taxation of digital currencies remains a vexed one, as tax authorities in various countries continue to grapple with their characterisation.

Some jurisdictions have made more progress than others. Germany was one of the first countries to legitimise Bitcoin when it recognised it as ‘private money’ in 2013. Japan started recognising crypto-currencies as a legal method of payment in early 2017, when it began requiring Bitcoin or ‘alternative coin’ exchanges or money transfer businesses to comply with the Financial Services Agency’s regulatory framework. The framework subjected them to annual audits and anti-money laundering rules, among other things.

Countries such as Bolivia, Ecuador, Colombia, Bangladesh and Nigeria have moved in the opposite direction by entirely banning the use of crypto-currencies. In late 2017, China, while not going as far as illegalising them, banned Bitcoin exchanges and initial coin offerings.

For federal United States (US) tax purposes, crypto-currencies are treated as property. However, this characterisation is far from consistent. The Financial Crimes Enforcement Network subjects digital currency exchanges to the same requirements and level of oversight as money transmitters. The US Commodity Futures Trading Commission regards Bitcoin and other digital currencies as commodities covered by the Commodity Exchange Act. District and Circuit court decisions range from describing digital currencies as “having a long way to go before it is equivalent of money” (Florida v Espinoza) to stating that Bitcoins are funds within the plain meaning of that term (US v Murgio). To add further uncertainty, some US states, such as California, Hawaii and Arizona, have reportedly taken steps to enact legislation accepting or promoting the use of crypto-currencies.

It is evident that the taxation of crypto-currencies is an emerging issue that all jurisdictions will eventually have to address. In that regard, it is pleasing to see that Australia has taken some proactive measures. However, given the immense rate of growth of crypto-currencies, their financial impact, the disruptive novelty of blockchain and the ever-growing enthusiasm of the FinTech sector, it remains to be seen what other challenges the future will bring and how they will be managed by authorities.

This article was based on Isakov, I 2017, ‘Australia’s tumultuous road towards taxation of digital currencies’, Australian GST Journal, vol. 17, no. 3, pp. 145-163. 

Ilya Isakov is a lawyer at the Australian Taxation Office. The views expressed are those of the author only and do not represent the views of the ATO.

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