Taxation Implications of Bitcoin and Other Cryptocurrencies in Australia

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW
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.