The tax office said, under the guidance paper and rulings, bitcoin transactions should be treated like barter transactions with similar taxation consequences.
According to an ATO statement, there will generally be no income tax or GST implications for individuals if they are not in business or carrying on an enterprise and they pay for goods or services in bitcoin.
Where an individual uses bitcoin to purchase goods or services for personal use or consumption, the tax office said any capital gain or loss from disposal of the bitcoin will be disregarded as a personal use asset – provided the cost of the bitcoin is $10,000 or less.
Capital gains tax rules may apply to individuals who use bitcoin as an investment when they dispose of it, as they would for shares of similar assets. There may also be fringe benefit tax consequences for businesses using bitcoin to pay employee salaries.
Businesses will need to record the value of bitcoin transactions as a part of their ordinary income and charge GST when they supply bitcoin, and may be subject to GST when receiving bitcoin, in return for goods and services.
Senior assistant commissioner Michael Hardy said the guidance offered by the ATO will provide certainty to Australian tax payers.
“The ATO has consulted extensively with bitcoin experts, businesses, industry bodies and other external stakeholders to develop this guidance and explain the obligations of bitcoin users.”
“People involved in buying or selling bitcoin or other cryptocurrencies – whether individuals or businesses – are encouraged to read our guidance. If their circumstances are not covered by the guidance, they can seek a private ruling by contacting us,” said Mr Hardy.
Chartered Accountants Australia and New Zealand Tax Counsel Michael Croker welcomed the ATO guidance.
Mr Crocker said accountants should now work with their clients who are holding Bitcoin to ensure they are compliant with the newly announced rules.
“Tax practitioners will need to work closely with clients who hold Bitcoin due to the ATO suggested record-keeping requirements. On a transaction by transaction basis, records should show:
• The date of the transaction/s
• The amount in Australian dollars (which can be taken from a reputable online exchange)
• What the transaction was for
• Who the other party was (even if it’s just their Bitcoin address).
“It is pleasing that the ATO has delivered this guidance to create certainty but it is important to recognise the implications for those that have already lodged prior year tax returns,” Mr Croker said.