Australian Treasury department calls for public comments to help classify digital currency

The Australian Treasury department recently released a discussion paper, “GST treatment of digital currency,” which asks for public comments on how Bitcoin and other digital currencies should be defined and taxed.

- The Hon. Scott Morrison MP

The 15-page document  is integral to the government’s new fintech push, announced in March.  “The Government announced its commitment to fix this impediment to the use of digital currency in its ‘Backing Australian FinTech’ statement,” said MP Morrison in the opening remarks of the discussion document.

Subsequently, Australia's 2016-17 budget, published on May 3rd, also includes a section on this topic, reiterating the government's commitment to promoting a strong and vibrant FinTech industry.

Among the initiatives announced in Australia's Budget are plans for a “strong and vibrant FinTech industry.” These initiatives are set to reform the treatment of digital currencies, and specifically mentioned the GST discussion paper and its’ goals. It also claimed a strong commitment to researching blockchain applications for the government and private sector.

- Australia Budget

The Budget also revealed that the largest data innovation group in Australia, Data61, will be conducting blockchain research for an unspecified use case. In August 2015, At the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and National ICT Australia (NICTA) joined forces to create Data61, as a single national research powerhouse.

“Data61, part of CSIRO, will review opportunities for its application across government and the private sector,” the budget document explained on page nine, “and undertake concurrent pilot testing in areas such as sharable registry information and verifiable supply chains.”

The discussion paper begins Australia's public consultation, a process that the New York Department of Financial Services completed last year. Starting in June and running for 45 days, the open invitation led to 3,782 official comments, from bitcoin exchanges and utilities to venture capitalists, banks, and even the press.

All interested parties are invited to take part by email, letter, or fax. The comment period remains open until June 3rd, after which all submissions will be made available on the Treasury’s public-facing website.

- GST treatment of digital currency

The discussion paper can be roughly divided into three parts, with discussion suggestions throughout. The first section brings the reader up to date on Bitcoin, and digital currencies in general, giving background on both international and domestic regulations, and spends some time explaining the double taxation problem that Australians are currently living under.

The second part is concerned with exactly how to define bitcoin and cryptocurrencies, which are lumped together as “digital currencies” throughout the document. This part focuses on the selection of criteria used to define them.

The third and largest section, taking up almost half the document, discusses the existing solutions for the double taxation problem. Comments are invited for further options, but they have come up with three potential solutions; two primary options, and one alternative scenario.

The first solution is an “Input taxed treatment,” which removes the taxable event from the acquisition of digital currencies. A consumer that buys a few dollars worth of an unspecified digital currency won’t be taxed on the transaction, but when he or she goes to buy a cup of coffee with that digital money, the coffee store charges normal sales tax.

A second solution is to remove all special designation and taxation from digital currencies, and to simply re-label them “money,” alongside items in the current definition of money, “including Australian or foreign currency, promissory notes, bills of exchange and money orders.”

This option would give bitcoin more credibility than before, but instantly subject bitcoin to all of the existing regulations that come with money, including taxation on foreign exchange transactions, required to buy them.

While the Senate Economics References Committee has already officially backed this second plan, according to the document, the treasury office feels that there are “significant technical difficulties and administrative complexities created by treating digital currency as equivalent to ‘money’.” This may make it harder to accomplish, and the Treasury would be much less certain about the outcome.

The last solution, designated the “alternative option,” is making all digital currencies completely tax free. The document doesn’t explore this option in detail, only mentioning that it would place digital currency suppliers, such as bitcoin exchanges, at an advantage over other suppliers for money and investments, since they would remain taxed.

- GST treatment of digital currency

Between the GST discussion paper, the effort to remove double taxation, the Data61 research, the overall FinTech initiative, and projects like the Australian Post Office looking into using the blockchain for identity management, the land down under may still take the lead in embracing the blockchain.