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Worldwide treatment of Bitcoin varies tremendously, despite the unitary nature of the peer-to-peer currency.
The recent decision by Australia’s tax office is a case in point, as it has taken the decision to view Bitcoin transactions in one of two ways. The first relates to those who use Bitcoin occasionally, in order to make small purchases or to engage in small-scale mining or currency trading with Bitcoin against a sovereign unit. Under this circumstance, if the purchase amount is less than AUD $10,000, then it is likely that the Australian Tax Office will turn a blind eye and that these individuals will not incur tax.
The second group under the taxation rulings relates to those who use crypto-currencies specifically for profit or business. Applicable to this group are an array of taxes, including capital gains, GST or taxation on fringe benefits, with records relating to taxation and transaction data requiring to be kept, including the date of the transaction, the amount, what it was for and who the other party was.
Australian Tax Office Senior Assistant Commissioner Michael Hardy today spoke to ABC Radio’s Will Ockenden about the subject, which was broadcast across Australia. In this interview, Mr. Hardy defended the Australian Tax Office’s decision relating to digital currencies. “It’s the law. We don’t make it up, we have to look at the existing law that we have” was Mr. Hardy’s direct statement.
“We explored the law carefully with input from industry experts in coming to this view. It just doesn’t fit the legal definitions, so we can’t pretend that it is something what it’s not” he continued.
Mr Hardy said for Bitcoin to be treated as money under Australian law, there would have to be a change of the legislation or another country would have to adopt Bitcoin as its national currency, something which has not yet occurred, however it is entirely possible that nations in which sovereign currency does not perform well and is subject to capital controls, whose populace could manage to remove the tight grip of their government could be the first to show steps in that direction, as denoted by a recent statistical report which stated that Argentina is a possible nation in which Bitcoin could be adopted on a national scale. As far as the current taxation regime is concerned, the Australian Tax Office plans to continue to monitor developments in the technology and its use overseas.
Perhaps a detail to be mindful of is that although the Australian Tax Office published its official guidelines today, it is based on existing taxation laws which means that in theory, Bitcoin-related taxation liabilities could be backdated and apply from the inception of Bitcoin some five years ago in 2009. For those who conducted commercial enterprises with a reliance on Bitcoin, this could result in a very expensive liability.
On this matter, Mr Hardy said that it is unlikely the tax office will demand payment. In this regard, rather than concerning itself with back payments and going to the extent of estimating and enforcing them, there could be a wider concern for the Australian authorities, in that the use of virtual currencies could disappear into an abyss of anonymous marketplaces and exchanges, thus regressing back to the dark days of Silk Road, and causing repeats of unregulated exchanges disappearing with client funds and no protection.
In the case of certain other jurisdictions, the losses suffered by customers due to illicit activity and lack of government recognition or exclusion of Bitcoin from the mainstream ecosystem has given way to regulatory authorities in New York and Switzerland generating a framework which aims protect customers, large scale venture capital investment from established, global and bona fide investors, and a network of legally recognized ATMs, quelling any fears from investors that the government is marginalizing them for using virtual currencies and that they will have some recourse if something untoward should happen.
“We’re not planning to go back and deliberately look at past periods where we think most people have tried to make a pretty good effort to get it right with what they understood the law to be” stated Mr. Hardy.
The ABC’s AM program revealed in June to its Australian audience that the tax office had been growing increasingly worried about the growth of Bitcoin, and had been keeping a detailed watching brief of the digital currency. The file, which was obtained by the AM program via Australia’s Freedom of Information laws detailed that up until a few years ago, the agency was skeptical about Bitcoin, but soon realized that people could use internet currencies to avoid paying tax.
It could well be that in one of the world’s most respected nations for secure banking, stable and sensible fiscal policy and highly advanced financial regulations, Bitcoin may remain in the wilderness.