Previously the Australian government classified the digital currency as an intangible asset, driving business overseas. A new recommendation would remove a double tax situation, and brings regulation in-line with the UK.
The Australian Tax Office (ATO) decided that bitcoin would be considered an intangible asset, which would double tax bitcoin. This was to be a huge inhibitor for bitcoin businesses operating within Australia’s jurisdiction.
The main question that always surrounded the tax treatment of bitcoin was its legal characterisation. According to its guidance, the ATO was of the view that the digital currency is a legal form of property. From this flowed bitcoin’s tax treatment.
At the time the ATO had taken the view that bitcoin is a taxable supply for GST purposes. This created a fair amount of concern to those offering bitcoin as a means of payment. In the instance where they hold bitcoin and then wish to exchange it for fiat currency ‘double GST’ could have been applied.
“In many ways the guidance has brought clarity to the position of bitcoin users in Australia. However, we don’t believe the ATO’s guidelines are ideal for bitcoin in this country. We believe in a simpler financial system, and we will continue work with the ATO to help them discover a fairer position.”
— – CoinJar
CoinJar appears to have made every effort to be compliant with the original guidance, however, the ATO’s ruling proved enough for the company to incorporate overseas. “On 1 December 2014, CoinJar relocated our headquarters to the United Kingdom as part of a global expansion that will provide customers more freedom to buy, sell and use bitcoin as a global digital currency. We are now officially incorporated as a UK company, CoinJar UK Limited, and have taken up residence in London’s financial district,” said CoinJar
According to the company’s announcement, the move away from Australia would not only catalyse the growth of CoinJar, but their customers would no longer be subject to the taxation involved, “the UK relocation will mean CoinJar customers will no longer be subject to 10 per cent GST (Goods and Services Tax) when they buy bitcoin using our services. HMRC (Her Majesty’s Revenue and Customs) in the UK exempts digital currency trading from value added tax (VAT), so new and existing CoinJar customers will not be levied any additional taxes.”
The UK Government has maintained a hands off approach to bitcoin. The Chancellor of the Exchequer George Osborne has been quite vocal on this front. In a speech last August he stated, “…with the right backing from government, I believe we can make London the Fin Tech capital of the world. For me this is not an add-on to what the City already does. It has to be what the City becomes in the future.”
Now Australia wants to get back in the game. Labor Senator Sam Dastyari appears to be pushing regulators in the direction that the UK has taken. Dastyari warned Australian banks last year not to "act like a bunch of ostriches" by sticking their "heads in the sand" when coming to grips with bitcoin. He urged companies to provide feedback to a Senate inquiry, exploring how to regulate the highly volatile digital currency, and it appears the result may be in bitcoin’s favour.
The Senate inquiry is now set to re-align the guidance from the ATO. Bitcoin and other digital currencies are now to be treated the same way as traditional currencies, following expected proposals from the Australian government.
"The opportunities for trade, investment, high salaries and world-leading skills are far more important [than any potential loss of revenue], and I urge the states to work with the Commonwealth to make what amounts to simple change," Dastyari, told the Australian Financial Review.
"Without a doubt, the main benefit will be the confidence and certainty that removing a GST will provide to our own digital entrepreneurs, and the foreign businesses who want to set up here. The Treasury ministers need to work with the states to make the changes necessary to bring our legislation into the 21st century."
— – Senator Sam Dastyari
The Senate Economics References Committee ruling into digital currency, which is to be tabled this week, drew comment from Coinjars CEO and Co-Founder, Asher Tan. "If it is defined as a global currency, this would be a positive step to encourage the bitcoin market to continue innovating." He concluded that "The Australian bitcoin market will significantly improve."
It will be interesting to see the direction Australia chooses when moving forward with Bitcoin. If Australia wants to walk arm in arm with United Kingdom, other changes will also have to be addressed.
The Australian Securities and Investment Commission (ASIC) recently lodged their second stop order against a Bitcoin company’s IPO. This is the second issuance in a month against the Melbourne based mining operator Bitcoin Group Ltd, for undisclosed reasons. Bitcoin Group Ltd is not required to stop their IPO until a final notice is issued, however it isn’t a warm welcome for the startup.
Australia also has some regulatory issues surrounding the use of cryptography, a core component of the digital currency industry. The Defense Trade Control Act (DTCA) prohibits anyone without a permit from supplying technology on the Defense and Strategic Goods List to anyone outside of Australia. Since encryption falls within these classifications, any citizen of Australia who shares information on encryption with a person outside the country could face criminal charges.
It is apparent that Australia is changing its view on the digital currency industry, but much like New York and the BitLicense, improvements can be made.