The Australian government released a policy statement on financial technology that included items on both digital currencies as well as broader blockchain applications and a related discussion paper, outlining possible solutions to the situation. There are three suggested options of bitcoin taxation.
Part of the policy statement was a declaration from the Australian Treasury that it is intending to seek avenues to cut the goods and service tax (GST) effectively applied twice to bitcoin users in the country, both when they purchase digital currency from a seller – an event that triggers GST – and again if they go on to use it to make a purchase.
Earlier this week, the Australia’s Treasury published a discussion paper that providing fixes to the situation. It draws insights from a report prepared by the Australian Senate.
According to the paper, first option is to make digital currencies (and bitcoin) an “input taxed financial supply” – similar to to how the trading of shares and loans is taxed.
As the report informs:
“Making the supply of digital currencies an input taxed financial supply would mean that no GST is required to be collected and remitted on their supply, eliminating the ‘double taxation’ of consumers. Digital currency suppliers (such as a digital currency trader) and financial institutions would likely not be entitled to full input tax credits for acquisitions related to these supplies.”
Second option would see digital currencies as the money, both being in the same category – this was proposed by the Australian Senate during the previous year.
“Making digital currency equivalent to ‘money’ for GST purposes would mean that the payment of digital currency in exchange for goods or services would generally no longer constitute a ‘supply’ for GST purposes,” the report explains. “As such, no GST would be required to be charged or remitted on the digital currency provided, although GST may still apply to the supply of the goods and services that the digital currency is exchanged for.”
Third weighed option is that it might simply deem digital currencies as completely exempt from GST – in this case it would grant “preferential treatment” that could “distort markets in other ways”.
It is too early to say, which option is about to be picked – although we know that the Senate supports the second option, regarding bitcoin as the money. The Treasury is expecting public feedback on the suggested proposals, with the comment period set to end on 3rd June.
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