Taxation Implications of Bitcoin and Other Cryptocurrencies in Australia

This paper discusses the tax implications which may arise out of holding or transacting in Australia with Bitcoin and other cryptocurrencies. It covers the tax treatment of Bitcoin in different situations, including personal and business transactions.

Running head: TAXATION LAW
Taxation Law
Name of student:
Name of the university:
Author note:

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The Australian Taxation office (ATO) considers Bitcoin as well as other form of
cryptocurrencies as a “kind of property”. Therefore any profit which is made by a person with
respect to the sale of such currency is likely to be subjected to the provisions of Capital Gain Tax
and therefore it has to be duly reported to the ATO1. However this area in relation to taxation in
Australia is still grey as it has not be subjected to tests by the court of law. However until and
unless such test are adequately conducted the owners and holders of such currency have been
advised by the ATO that they must keep adequate and true records with respect to the receipt of
payments, their intention and transactions entered upon into by them. The owners of such
currency in their best interest should abide by the advice provided by the ATO as the office is
taking a very strict stance in relation to the cryptocurrency holders trying to evade their tax
liabilities. There may be a belief among many holders of such currency that the currency itself is
not taxable. However such belief is wrong and mistaken as crytocurrencies are treated as a
property in Australia. There is also a situation where cryptocurrency investors may be treated as
speculators by the court unless otherwise established by them. The situation signifies that the
profits which are received by such investors through the virtue of making investment in
cryptocurrency is eligible to be taxed totally as a source of income instead of capital gains. The
situation further signifies that the investors would not be able to avail any tax discounts after the
currency is duly held for a period of one year or more. It is believed by majority of tax experts
that most persons who manifest themselves as investors are in reality speculators even where the
currency has been held by them for twelve month period or more2. In addition bitcoin and other
form of crypto currencies are different to shares as such assets are held for long term and usually
1 De Filippi, Primavera. "Bitcoin: a regulatory nightmare to a libertarian dream." (2014).
2 Godsiff, Philip. "Bitcoin: bubble or blockchain." Agent and Multi-Agent

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result in dividends, moreover, when it comes to speculative purposes this is difficult to be seen in
relation to cryptocurrency3.
It is evident from the above discussion that there a clear uncertainty regarding the concept
of tax upon Bitcoin and other cryptocurrency which are taking the Australian market as a storm.
The purpose of this paper is to throw a light upon the tax implications which may arise out of
holding or transacting in Australia. The paper discusses the tax implication which
cryptocurrencies like Bitcoin may be subjected to in different situations.
In relation to the general taxation situation related to Bitcoin it has to be firstly analyzed
that what approach is taken by the ATO towards treatment of the sale of an asset. When the ATO
analyzes the tax treatment of an asset it has to initially identify the intention of the individual as
to why the asset has been acquired. One of the reasons because of which Bitcoin has become
popular is the fear among the public that they may lose out on something big and their neighbors
who are investing big may gain big. In addition the hostility and mistrust which the public has in
relation to the traditional banking system has also added to the popularity of cryptocurrencies in
Australia. Thus the currency is taking the country by storm. Every person wants to be a part of
the action as prices are reaching an all time high. Crypto assets are being purchased by more and
more Australia such as Blockchains, bubbles and popularly Bitcoin4. In this situation not only the
tradors and inverstors but also the ATO is keeping a close track of cryptocurrencies. In relation
to such track a guidance paper has been issued by the ATO where it provides for the tax
treatment of such currency in different situations. However Bitcoin also started to operate its
3 Slattery, Thomas. "Taking a bit out of crime: Bitcoin and cross-border tax evasion." Brook. J. Int'l L. 39 (2014):
829.
4 McLeod, Patrick. "Taxing and Regulating Bitcoin: The Government's Game of Catch Up." CommLaw
Conspectus 22 (2013): 379.

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own ATMs across the world. In addition few tradors have also started to accept Bitcoin as a
mode of payment.
Before analyzing the tax treatment of Bitcoin or other Cryptocurrencies, what actually
constitutes such currency needs to be discussed. A few people may describe them as virtual
money or currency which has no existence physically. These currencies are saved in electronic
wallets through which a relation between the buyer and seller is provided. The use of such
currency can be done online.
According to the tax guidance which has been released by the ATO, it has been specified
that the office does not view a crytocurrency as foreign currency or money, rater they are viewed
by it in form of a digital commodity. To make it simple the office considered tokens and
cryptocurrencies in form of an asset. Just like a diamond, when such assets are traded, purchased,
sold or exchanged an event is triggered. Whether such even is to be treated as revenue or capital
gain even relies upon the facts and circumstances which surrounds the event. It has been
provided by the ATO that when a person indulges into transactions with a Bitcoin it is a form of
barter system and therefore similar tax consequences are imposed in the person. The ATO also
considers that supplying Bitcoin cannot be subjected to Goods and Services Tax (GST)
consequences as it is not a good. Bitcoin for the purpose of capital gain is considered as an asset
by the ATO. Thus, when a person enters into a transaction with the use of Bitcoin there are a few
specific records which needs to be maintained. These records include the date where the
transaction took place, the amount which is included in the transaction in Australian Dollars
which can be ascertained through taking data from a trusted online exchange source. The
purpose for which the transaction had been entered upon into and who was the other party with
which the transaction had been entered upon into.

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When it comes to personal transaction with the use of Bitcoin the tax consequences are
different. In the given situation the ATO given the nature of Bitcoin will not impose or subject
the transaction to any GST or income tax implications when a person is not in business or is not
operating an enterprise and is merely indulging in payment of goods and services through the use
of Bitcoins5. For instance when a person is purchasing any goods or services online through the
use of Bitcoin he is not to be subjected to GST or income tax provision in relation to the
transaction. When Bitcoin is used by an individual for the purpose of buying services or goods
for using them personally or for consumption any capital gain or loss which may result out of
such transaction is likely not to be considered as it would be treated as a personal use asset.
However it has to be remembered that the value of such transaction has to be less than A$10000.
When the question is context are related to a transaction which is business in nature
rather than personal done through the use of Bitcoin or other crypto currency the treatment of
such transaction is done in a different manner. When a person has received bit coin in return of
the goods and services provided by them with respect to their business it is their liability to keep
a record as a part of their general income the value of Australian dollars. The process is the same
when a person receives a consideration which is not in form of cash such as in the barter system
or barter transactions. The value provided by a reputed and trusted online exchange has to be
considered as the value of Australian dollars. For instance when a person or business gets bit
coin in exchange of goods or services, GST may be imposed on the business or the person in
relation to the Bitcoin. In situation where the supply of goods and services is taxable there would
be a right provided to the business to be able to make a claim for input tax credits with respect to
GST which has been charged in relation to Bitcoin provided to them in form of payments. These
5 Hampton, Sam. "Undermining Bitcoin." Wash. JL Tech. & Arts11 (2015): 331.

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circumstances are governed through the TR IT 2668 Income tax: barter and countertrade
transaction6. The primary purpose of the ruling is to provide the ATO with a view in relation to
when a countertrade or barter transaction results in assessable income, what is the monetory
value which has to be imposed in such transactions and when allowable deduction arise from
these kind of transactions as well as sales tax implications of such transactions. According to the
ruling simple a barter transaction includes the exchange of goods and services directly with other
goods and services rather than the use of money7. These transaction can take place between to
individuals in a private manner. For instance there may be a exchange of hone grown products
between neighbors for the purpose of consumption. The system may also take place in
commercial area where a business may exchange goods and services with another business. Thus
if such transactions are not taxed there are chances that the big businesses in order to avoid tax
will indulge in bartering big ticket transactions. In addition refined kind of barter has originated
in the more recent times in the local and international market place which is also identified by
the ATO as countertrading. Thus the ruling is applicable on all forms of countertrading and
barter systems transactions8.
As provided by Subsection 25(1) of the Income Tax Assessment Act 1936 every income
which has been derived by a person, other than those income which are exempt and a few
termination payments has to be taken for the purpose of assessing the income tax payable by
such person9. Any consideration which is received by a person or is supposed to be received in
6 Abramovich, Mark. "coining a new currency." Superfunds Magazine 393 (2014): 38.
7 Taxation, Australian. "Tax treatment of crypto-currencies in Australia-specifically bitcoin. Retrieved March 5,
2017." (2013).
8 Bryans, Danton. "Bitcoin and money laundering: mining for an effective solution." Ind. LJ 89 (2014): 441.
9 Subsection 25(1) of the Income Tax Assessment Act 1936

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relation to a countertrade or barter transaction in credit units or goods and services for the
purpose of being assessed under the subsection relies upon the character of the consideration
which is held by the person. It has to be noted that when dealing with barter or countertrade
transactions they are deductible or assessable to the same extent as any similar credit or cash
transaction10. In the same way for deriving the income and incurring expenditure timing
principles which are applicable on any credit or cash transactions are applicable on countertrade
and barter transactions. in situation where an employee is provided a non cash consideration in
return of services provided by them the income is assessed as the purpose of income tax in the
same way as a fringe benefit. Thus if an employee receives a bitcoin as fringe benefit it is
taxable. It has to be noted that in situation where the sum of a non cash benefit transaction is not
more than $300 in a particular year of income, no amount is liable to be assessed under
subsection 25(1) as these benefits are subjected to an exception under the provisions of section
23L of the ITAA. Thus in the same way transacting with a Bitcoin under $300 is also likely to be
exempted. In addition it has been provided through section 21 of the ITAA that any
consideration from countertrade or barter transactions would be valued as the money value or as
per section 21A as the arm length value of the received consideration. Generally while providing
value to the consideration from a countertrade or barter transaction the office is likely to accept a
fair market value through which the arms length value or money value is reflected as applicable.
In maximum cases the office as a fair market value accepts the price which would have normally
been changed by a tax payer from a stranger in relation to sale of good, property or services.
However when it comes to countertrade in relation to business organization, the fair market
value would be deemed by the office in relation to ever credit unit as an Australian dollar other
10 Franklin, Mitchell. "A PROFILE OF BITCOIN CURRENCY: AN EXPLORATORY STUDY." International
Journal of Business & Economics Perspectives 11.1 (2016).

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than when it can be shown that there is a consistent different value of such credit units while
trading. Thus the same principles of valuation in relation to transacting with bitcoins are also
applicable11.
Any transactions which are entered upon into through the use of Bitcoin is also likely to
be subjected to the provisions for deduction as provided through section 51 of the ITAA. For
instance where a car company provides a car to a lawyer for the services provided by him the
arm’s length value of the car will be considered as an allowable deduction towards the car
company12. A number of changes and fees are imposed by business-oriented countertrade
organizations in their members and the degree to which these charges are to be considered as
allowable deduction are subjected to the provisions of subsection 51(1) of the ITAA. In
maximum situations recurring charges such as transaction or service fee, where they are directly
related to the transaction are to be considered as deductible expenses. However under the
provisions of subsection 51(1) joining fees is not allowed to be deducted as it is capital in nature.
These fees result out of a one time payment through which individuals are provided access to
indulge in such trading. Thus in the given situation the same principles are to be applied in
relation to determination of deduction with respect to bitcoin and other cryptocurrecy trading13.
To the degree to which a countertrade or barter transaction of goods is initiated prior to
the passing of taxing points by the goods, for instance the end wholesale sales of goods which
have been locally manufactured or imported in the country, the liability of sales tax would be
11 Isom, Jennifer. "As Certain as Death and Taxes: Consumer Considerations of Bitcoin Transactions for When the
IRS Comes Knocking." (2013).
12 Liu, Louis, and Chuck Dana. "Crypto Currency and Society." (2012).
13 Šafka, Jiří. "Virtual currencies in real economy: Bitcoin." (2014).

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imposed upon the goods in a similar manner as compared to position of the goods if imported or
sold conventionally14. The countertrading or bartering of goods by which their taxing points have
already been passed would not be subjected to any sales tax implications. Thus in the same way
he countertrading or bartering of Bitcoin or other cryptocurrency where their taxing points have
already been passed would not be subjected to any sales tax implications.
When it comes to the use of Bitcoin for goods and services the following are the tax
implications. Where a person is indulging into a business where he or she is buying items for the
business through the use of Bitcoins such as trading stock they would have the right to claim
deduction with respect to the value of arms length of the acquired item. However GST has to be
paid in relation to the supply of Bitcoin which is done in relation to or in course of business of
the enterprise15. The calculation of GST would be done with respect to the market value of goods
and services. Generally this is equal to bitcoins or other cryptocurrencies’ fair market value when
the transactions had been entered upon into16. In addition there are also capital gain tax
consequences applicable on bitcoin. These consequences will be applicable in situation where
bitcoin is used as part of carrying out the business activity. However it has to be noted that any
form of capital gain is decreased with respect to the amount which is incorporated in the
assessable income in from of ordinary income of a person17.
14 Wiseman, Scott A. "Property or Currency: The Tax Dilemma behind Bitcoin." Utah L. Rev. (2016): 417.
15 Driscoll, Brian S., and T. J. Wang. "Accounting and Taxation of Virtual Currencies." (2016).
16 Patron, Travis. The Bitcoin Revolution: An Internet of Money. Travis Patron, 2015.
17 Bal, Aleksandra. "How to Tax Bitcoin?." Handbook of digital currency. 2015. 267-282.

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In situation where there is a legal agreement between the employee and the employer that
the employee is willing to sacrifice his or her salary in Australian dollars in lieu of receiving
Bitcoins, the treatment of such payment is bitcoin would be done as a fringe benefit and the
employer would have to abide by the provisions of the Fringe Benefits Tax Assessment Act
198618. However where there is no legal agreement between the employee and the employer in
relation to the sacrifice of salary, the payment is to be treated as general wages or salary, the
employers have the liability of meeting “pay as you go” obligations in a usual manner. TR
2001/10 Income tax: fringe benefits tax and superannuation guarantee: salary sacrifice
arrangements deals with such situation. A person who has the liability of paying wages and
salary under the meaning of the ITAA also has the responsibility of paying fringe benefit tax in
relation to the taxable value of fringe benefit within a financial year19. Generally, as defined in
subsection 136(1) of the FBTAA is a benefit which is given to an employee or associate by the
employer in relation to the services of the employee. In addition it has been provided that the
definition of fringe benefit is exclusive of payment of such wages or salary or a payment which
can be considered as a wage or salary in case such payments involves income exempt in relation
to the ITAA. Thus in the same way where the employees are provided bitcoin in form of a fringe
benefit by the employer the employer is liable to pay FBT in relation to the taxable value of
Bitcoin20.
There are provisions provided by the ATO in relation to the situation of mining Bitcoin
as well. In situation where a person indulges in business of mining Bitcoin any form of income
18 Chapman, Jennifer L., Benjamin Akins, and Jason M. Gordon. "A Whole New World: Income Tax
Considerations of the Bitcoin Economy." (2014).
19 Wisniewska, Anna. Bitcoin as an example of a virtual currency. No. 1/2016. 2016.
20 Lee, Taiki. "C. Overseas Cases of Taxation on Digital Currency." Korean Economic and Financial Review 22.3
(2017): 63-65.

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with such person games or derives from such transfers in relation to mine Bitcoins to any third
party is liable to assessed for income tax purpose21. In the same way any expenses which a
person in cause for the purpose of mining Bitcoins would be subjected to deduction under the
income tax assessment act22. The non commercial loss provision may be applicable on any losses
with a person has entered in relation to mining activities arising out of Bitcoin. In addition where
are taxpayer who indulges into a business of selling and mining Bitcoin will be treated by the
ATO as a trading stock. It is the liability of such taxpayers to keep a record of any Bitcoin which
are in hand at every income year ending. In addition a person would also be liable to pay GST
with respect to any supply of Bitcoin which is made in furtherance or in course of the Bitcoin
mining business. The person may also be provided with an opportunity to avail input tax credit
with respect to the acquisitions attained in relation to carrying out the Bitcoin mining business.
As discussed above there are various Bitcoin ATMs which have been opened across the
country. These give effect to exchange transactions in relation to Bitcoins and other
cryptocurrencies. There are specific tax consequences of indulging into these kinds of
transactions. In situation where a person is indulging in business activities which include selling
and buying of Bitcoin inform of an exchange service the proceeds derived by such person in
relation to the sale of Bitcoin are to be included for the purpose of the assessable income under
the income tax assessment act23. In the same way any expenses which have been incurred by the
person with respect to any exchange services including those in relation to acquisition of Bitcoin
21 Tripathy, Chetan. "A Bit of Bother." (2015).
22 Kucherov, I. I., and I. A. Khavanova. "TAX CONSEQUENCES OF USING ALTERNATIVE MEANS OF
PAYMENT (THEORETICAL AND LEGAL ASPECTS)." VESTNIK PERMSKOGO UNIVERSITETA-
JURIDICHESKIE NAUKI 1 (2017): 66-72.
23 Bal, Aleksandra. "How to Tax Bitcoin?." Handbook of digital currency. 2015. 267-282.

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for sale purposes would be allowed as legal deduction. Any taxpayer who holds a bitcoin and
indulges into a business which exchanges Bitcoin it would make Bitcoin be considered as a
trading stock. In the same way as for mining purposes Bitcoin which are held by the person in
hand at the end of every in come here has to be accurately recorded24. In addition a person would
also be liable to pay GST with respect to any supply of Bitcoin which is made in furtherance or
in course of the Bitcoin exchang business. The person may also be provided with an opportunity
to avail input tax credit with respect to the acquisitions attained in relation to carrying out the
Bitcoin exchange business. The consequences of tax with respect to entering into a transaction
through the use of a bitcoin exchange would rely on the question that whether the person is
supplying or acquiring the cryptocurrency as a part of business transaction or for the purpose of
investment or otherwise25. These provisions are governed through TR 2001/14 Income tax:
Division 35 – non-commercial losses.
There are a few recommendations which can be provided in relation to ensuring that a
person is able to properly take course of taxation of Bitcoin and other Cryptocurrencies in
Australia. In the initial stage, to prepare our return of tax in the last part of financial year , the
availability of all the information is very much important to us. It is important to make an
arrangement before hand and keep in record of all the information that is needed before an
individual is organizing his own return of tax or whether a person is willing to make a usage of a
taxation adviser. This is the way of having access to every cryptocurrency transactions (sales,
purchases and trades). Whenever a person is making a record of them they should make sure to
make verification of date, in AUD the transaction of the amount (after even they trade from one
24 McCullum, Esq, and N. Paul. "Bitcoin: Property or Currency?." (2015).
25 DeVries, Peter D. "An Analysis of Cryptocurrency, Bitcoin, and the Future."

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cryptoasset to the other one)26. There are many exchanges which have such functions that will
availability of this function and make it permissible for an individual to print every transactions
to a document of excel. In the second stage, a person should not start assuming that the ATO will
be turning into a blind eye to cryptocurrency. The final recommendations says that one should
seek advice whenever it is required. The landscape of task is ambiguous at many times,
specifically when a fresh conception is entirely given to an individual like in merging up of
cryptocurrency. An individual should always consult to a tax accountant whenever one feels
confused or unsure at any point of tax obligation.
The environment and pace of the cryptocurrency market is swift and it is very stimulating
as well. Probably a person might be thinking tax as the final thing but it is very essential for a
person to realize and recognize ones responsibilities and accordingly an individual should plan
ahead. Thus from the above discussion it can be concluded that The Australian Taxation office
(ATO) considers Bitcoin as well as other form of cryptocurrencies as a “kind of property”. As
per the tax guidance which has been released by the ATO, it has been specified that the office
does not view a crytocurrency as foreign currency or money, rater they are viewed by it in form
of a digital commodity. It has been provided by the ATO that when a person indulges into
transactions with a Bitcoin it is a form of barter system and therefore similar tax consequences
are imposed in the person. The ATO also considers that supplying Bitcoin cannot be subjected to
Goods and Services Tax (GST) consequences as it is not a good. In the same way as tax
exemptions for barter under $300, transacting with a Bitcoin under $300 is also likely to be
exempted. The ATO also considers that supplying Bitcoin cannot be subjected to Goods and
Services Tax (GST) consequences as it is not considered as goods. Where a person is indulging
26 McCullum, Paul. "Tax Treatment of Bitcoin: Property or Currency?." (2015).

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into a business where he or she is buying items for the business through the use of Bitcoins such
as trading stock they would have the right to claim deduction with respect to the value of arms
length of the acquired item. Where the employees are provided bitcoin in form of a fringe benefit
by the employer the employer is liable to pay FBT in relation to the taxable value of Bitcoin. The
consequences of tax with respect to entering into a transaction through the use of a bitcoin
exchange would rely on the question that whether the person is supplying or acquiring the
cryptocurrency as a part of business transaction or for the purpose of investment or otherwise.
The businesses and individuals associated with bitcoin and other form of crypto currency can
take follow the recommendations provided by the paper.

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Bibliography
Abramovich, Mark. "coining a new currency." Superfunds Magazine 393 (2014): 38.
Bal, Aleksandra. "How to Tax Bitcoin?." Handbook of digital currency. 2015. 267-282.
Bal, Aleksandra. "Should Virtual Currency Be Subject to Income Tax?." (2014).
Bryans, Danton. "Bitcoin and money laundering: mining for an effective solution." Ind. LJ 89
(2014): 441.
Chapman, Jennifer L., Benjamin Akins, and Jason M. Gordon. "A Whole New World: Income
Tax Considerations of the Bitcoin Economy." (2014).
De Filippi, Primavera. "Bitcoin: a regulatory nightmare to a libertarian dream." (2014).
DeVries, Peter D. "An Analysis of Cryptocurrency, Bitcoin, and the Future."
Driscoll, Brian S., and T. J. Wang. "Accounting and Taxation of Virtual Currencies." (2016).
Franklin, Mitchell. "A PROFILE OF BITCOIN CURRENCY: AN EXPLORATORY
STUDY." International Journal of Business & Economics Perspectives 11.1 (2016).
Godsiff, Philip. "Bitcoin: bubble or blockchain." Agent and Multi-Agent
Hampton, Sam. "Undermining Bitcoin." Wash. JL Tech. & Arts11 (2015): 331.
Isom, Jennifer. "As Certain as Death and Taxes: Consumer Considerations of Bitcoin
Transactions for When the IRS Comes Knocking." (2013).

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TAXATION LAW
Kucherov, I. I., and I. A. Khavanova. "TAX CONSEQUENCES OF USING ALTERNATIVE
MEANS OF PAYMENT (THEORETICAL AND LEGAL ASPECTS)." VESTNIK
PERMSKOGO UNIVERSITETA-JURIDICHESKIE NAUKI 1 (2017): 66-72.
Lee, Taiki. "C. Overseas Cases of Taxation on Digital Currency." Korean Economic and
Financial Review 22.3 (2017): 63-65.
Liu, Louis, and Chuck Dana. "Crypto Currency and Society." (2012).
McCullum, Esq, and N. Paul. "Bitcoin: Property or Currency?." (2015).
McCullum, Paul. "Tax Treatment of Bitcoin: Property or Currency?." (2015).
McLeod, Patrick. "Taxing and Regulating Bitcoin: The Government's Game of Catch
Up." CommLaw Conspectus 22 (2013): 379.
Patron, Travis. The Bitcoin Revolution: An Internet of Money. Travis Patron, 2015.
Šafka, Jiří. "Virtual currencies in real economy: Bitcoin." (2014).
Slattery, Thomas. "Taking a bit out of crime: Bitcoin and cross-border tax evasion." Brook. J.
Int'l L. 39 (2014): 829.
Taxation, Australian. "Tax treatment of crypto-currencies in Australia-specifically bitcoin.
Retrieved March 5, 2017." (2013).
Tripathy, Chetan. "A Bit of Bother." (2015).
Wiseman, Scott A. "Property or Currency: The Tax Dilemma behind Bitcoin." Utah L.
Rev. (2016): 417.

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Wisniewska, Anna. Bitcoin as an example of a virtual currency. No. 1/2016. 2016.