Digital Currency (incl bitcoin) inquiry report delayed; GST position should be clarified

The Senate referred an inquiry into Digital Currency (which includes, but is not limited to, bitcoin) to its Economics References Committee on 2 October 2014. Submissions to the inquiry closed on 28 November 2014 and the Committee was due to report by 2 March 2015. However, disappointingly, the Senate has now granted the Committee an extension of time and the report is now due on 10 August 2015. The Committee conducted further hearings on 4 March 2015.

The status of the Committee's inquiry can be found on its website.

Public hearings on 4 March 2015

Revenue specialists from Treasury and the ATO appeared before the Committee between 10.30 and 11.30 am on 4 March 2015.

I expected that particular session would have focussed on GST and the ATO's public ruling on bitcoin transactions. However, the transcripts had not been released as at the time of going to press.

Details of the Committee's Public Hearings (includes program and transcripts) are also on its website.

Where does this leave us?

The delay in the release of the Senate report is unfortunate. The ATO released its draft public ruling on GST and bitcoin transactions on 20 August 2014, with the final version, GST Ruling GSTR 2014/3, being released on 17 December 2014. So it will be around 12 months between the release of the ATO's initial public guidance and the release of the Senate report. In the interim, some Australian bitcoin exchanges have already relocated overseas or changed their structures in light of the ATO's ruling.

While the ruling deals specifically with bitcoin, the principles it sets out will also be relevant for other crypto-currencies. The ATO's ruling treats bitcoins as a commodity, not as "money". Consequently, GST registered businesses which sell bitcoins in Australia, as part of an exchange transaction, are liable for GST on such sales. Further, GST registered businesses that use bitcoins to make payments are liable for GST on the supply of the bitcoins. The bitcoin payment is viewed as a barter exchange. These outcomes are impractical and place some Australian bitcoin exchanges at a price disadvantage to overseas exchanges.

In my view, the ATO's GST position is correct and the ruling is not the problem. Rather, the problem is that the GST Act does not adequately deal with bitcoin and other crypto-currencies. This is unsurprising given the GST Act was enacted in 1999 and bitcoin was not released as open-sourced software until 2009. The issues could be readily resolved if the GST Act is amended to treat bitcoin as "money" and consistently with foreign currency. In my article at 2015 WTB 1 [1], I explained in some detail why the GST Act should be changed.

Hopefully consideration of such reforms will not be delayed until after the Senate report is released in August 2015.

Acknowledgement: This article was first published by Thomson Reuters in Weeky Tax Bulletin (Friday, 6 March 2015).