Australian govt consults on digital currency taxation legislation
The purpose of the legislative changes is to remove the double taxation of digital currency.
The Australian government is looking for the best way to address the so-called “double taxation” of digital currency which is now prescribed by the Goods and Services Tax (GST) law. The push comes amid a sharp growth in the use of this particular type of medium of exchange.
The government has published exposure draft legislation and explanatory material for amendments to the GST law. The public consultation on these proposals will run for four weeks, closing on July 26, 2017. The draft legislation would have a retrospective start date of July 1, 2017.
In summary, from July 1, 2017, digital currency will be treated just like money for GST purposes. At present, consumers who use digital currencies have to bear GST twice: once on the purchase of the digital currency and once again on its use in exchange for other goods and services subject to the GST.
The proposed amendments would define digital currency as needing to broadly have the same features as state fiat currencies. In particular, in the same way as state fiat currencies, the value of a digital currency must derive from the market’s assessment of the value of the currency for the purposes of exchange, although it lacks an intrinsic value.
To be considered as a digital currency and to have the same treatment as state fiat currencies for GST purposes, digital currencies must be suitable for use as a medium of exchange. Digital assets that are not suitable for use as consideration, or which are only available to the public subject to restrictions of their use, such as loyalty points provided by retailers or ‘currencies’ used in some online multiplayer games, do not fall within the scope of digital currency as they cannot be used in the same way as money.
The use of distributed ledger technology for applications such as record-keeping will not result in the creation of a digital currency as this does not involve fungible units suitable for use as consideration.
The government hopes the law amendments will make it easier for innovative digital currency businesses to operate in Australia.