Update: Australia changes its tax (GST) regime to address cryptocurrencies

The double tax issue arose when people used bitcoin or other cryptocurrencies as a payment for a transaction, limiting the attractiveness of using cryptocurrency as payment (particularly for business-to-business transactions).

By default, Australian GST law (and most other GST/VAT laws) treat the use of bitcoin or cryptocurrency as a ‘supply’, rather than as payment for a supply — from a GST law point of view, two transactions occur rather than one, so a GST liability potentially arises twice.

Australia was one of the earlier countries to consider the GST/VAT implications of cryptocurrencies, with the Australian Taxation Office (ATO) releasing draft tax rulings in around mid 2014. It was the ATO’s review of the tax implications of cryptocurrencies that highlighted the issues with the GST regime.

Over the next 3 years, the government responded with by examining the issue with various inquiries and reviews.

Changes were finally announced earlier this year as part of the government’s reforms to promote start-ups and the FinTech companies, and make Australia a more attractive jurisdiction for the tech industry generally.

It is to the government’s credit that it ultimately made the necessary legal changes to allow cryptocurrencies’ effective use as payment in Australia. However, it is a shame that Australia took quite so long to make the necessary changes.

Australia first considered the GST issue before most other jurisdictions, but many other countries (including the whole of the EU) have already addressed this technical legal issue. In doing so, Australia missed a great opportunity to be a ‘first mover’ and establish itself as a favourable jurisdiction for cryptocurrencies ahead of other countries. Hopefully future legal changes are able to keep pace with this fast-moving industry.

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