The Australian Taxation Office (ATO) released its guidance on the taxation treatment of Bitcoin and other crypto-currencies which has been given the title ‘Tax treatment of crypto-currencies in Australia – specifically Bitcoin.’ The release is crucial as it coincides with the lodgment of Australians’ 2013-2014 income tax returns.
The document’s preamble says that this guidance paper provides an overview of the tax treatment for transactions associated with crypto-currencies, specifically Bitcoin. The ATO clears that where other crypto-currencies have the same characteristics as Bitcoin, the information in this guidance paper applies equally to the taxation treatment for other crypto-currencies as well.
The guideline says that generally, there will be no income tax or Goods and Services Tax (GST) implications for individuals provided they are not in business or carrying on an enterprise and pay for goods and services in the crypto-currency. Now individuals investing in Bitcoin may be subject to capital gains tax rules when they dispose of it, as they would for share assets.
The ATO also clears that any capital gain or loss from disposal of Bitcoin paid by an individual to purchase goods or services for personal use or consumption will be disregarded as a personal use asset as long as the cost of the Bitcoin is AU$10,000 or less.
Taxing Bitcoin Mining
The guideline regarding Bitcoin mining says that where someone is in the business of mining Bitcoin, any income that he derives from the transfer of the mined Bitcoin to a third party would be included in his assessable income. It says that any expenses incurred in respect to the mining activity would be allowed as a deduction.
Further, the ATO guideline says that losses the Bitcoin miner makes from the mining activity may also be subject to the non-commercial loss provisions. The organization clears that people involved in Bitcoin trading stock are required to bring to account any Bitcoin on hand at the end of each income year. Also, GST is payable on the supply of Bitcoin made in the course or furtherance of Bitcoin mining enterprise.
Clarification about the Implementation of the Guidelines
The ATO in its release makes it clear that the guidance is general in nature and statements about deductibility assume that the ordinary conditions for a deduction are satisfied. It also cleared that for GST purposes, the paper assumes supplies are connected with Australia, relevant taxpayers are registered or required to be registered and supplies are not GST-free.
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