The Australian Taxation Office (ATO) has released new public guidance addressing the application of goods and services tax (GST) on certain ‘digital currency’ interactions.
The release contains four sub-sections addressing the GST implications for:
- digital currency in general;
- digital currency trading;
- digital currency exchange (DCE) interactions; and
- digital currency as a form of payment.
GST and digital currency
Despite the lack of a formal definition of ‘digital currency’ in Australian taxation legislation, the ATO has defined ‘digital currency’ in the guidance as a form of ‘crypto asset‘ “that uses cryptography and distributed ledger technology to secure and record transactions” and is a digital unit of value that can be provided as a payment. Examples provided in the guidance are BTC, ETH, and LTC.
Conversely, the ATO has carved out certain crypto assets that are not digital currency, including:
- loyalty points that can be redeemed for goods;
- in-game tokens that cannot be used outside of the particular game’s digital environment;
- non-fungible tokens (NFTs);
- stablecoins; and
- coins from initial coin offerings that are securities, shares, interests in managed investment schemes, derivatives, or otherwise give a right or entitlement to goods and services.
The exclusion of ‘stablecoins’ from the ATO’s definition of ‘digital currency’ is curious as stablecoins are usually thought of as being a type of crypto asset most akin to regular ‘currency’.
GST and digital currency trading
The guidance outlines that if you trade digital currency in exchange for money or other digital currency with an Australian resident, the ‘supply’ of digital currency will be an input-taxed financial supply and therefore you don’t have to pay GST.
Example: selling digital currency to a resident located in Australia
Adnan is buying and selling digital currency through an enterprise he carries on in Australia and is registered for GST.
Adnan sells CostyCoin (a digital currency) for Australian dollars to CoinWallet Pty Ltd, a digital currency exchange.
CoinWallet is an Australian resident company that is located in Australia and is registered for GST. Adnan’s supply of CostyCoin is an input taxed financial supply and he will not have to report and pay any GST for this supply.
Also included in this subsection of the guidance is an example pertaining to the sale of digital currency to a non-resident for Australian tax purposes, an outline of the requirements for GST registration, and an outline of the process to claim GST credits.
GST and digital currency exchanges
The guidance confirms that DCEs in Australia must report and pay GST on the taxable supplies they make when facilitating trades of crypto assets to Australian residents located in Australia. Conversely, the supply of facilitating trades of crypto assets to non-residents who are not located in Australia will be GST free.
The publication also references specific GST guidance relating to NFTs and NFT marketplaces which the ATO considers may qualify as electronic distribution platforms.
GST and digital currency as payment
Finally, the guidance outlines that if a taxpayer makes a taxable supply (i.e. a supply that ordinarily attracts GST) and receives digital currency as a payment for that supply, the amount included in the taxpayer’s business activity statement must be in Australian dollars (as opposed to denominated in the particular digital currency received).
The AUD value of the digital currency received as payment for the taxable supply is calculated at a different point in time (the ‘conversion day’) depending on whether the taxpayer accounts for GST on a cash or non-cash basis. For taxpayers accounting on a cash basis, the conversion day is the date they convert the digital currency payment into Australia dollars. For taxpayers accounting on a non-cash basis, the conversion day is the earliest of:
- the day they receive any of the digital currency payment relating to the transaction; or
- the transaction date or the invoice date.
Conclusion
Although the guidance is relatively non-contentious and is reflective of existing industry positions and practices, it is a welcome clarification of the guidance regarding cryptocurrency interactions. The ATO is expected to release additional public guidance by December 2023 that will address the tax treatment of crypto assets.
