ATO rules on Bitcoin - not enough purchase to be money

By Gavin Smith
Banking & Finance Financial Services Tax Technology & Outsourcing

In brief

The Australian Tax Office has released draft rulings stating their view that the digital currency, Bitcoin, is property and not money. Partner Gavin Smith, Associate David Rountree and Associate Tom Tian consider the potential consequences for Australian businesses using Bitcoin.

28 August 2014

How does it affect you?

  • Australian businesses seeking to accept or use Bitcoin will need to carefully consider the taxation and compliance consequences of doing so.
  • Businesses seeking to use Bitcoin as a central component of their business may be discouraged from establishing operations in Australia, leading to potential forum shopping for preferable taxation treatment. 


On 20 August 2014, the Australian Tax Office (ATO) released a series of draft rulings considering the tax consequences of the use of Bitcoin. For the uninitiated, Bitcoin (and many other similar 'cryptocurrencies') is a form of peer-to-peer digital 'currency'. The draft rulings are significant, as they represent the first in-depth consideration of Bitcoin by an Australian regulator.

Bitcoin is property, not money

In the draft rulings, the ATO has reached the view that Bitcoin is not 'money' or 'foreign currency' under the existing law. Despite having many of the characteristics of 'money', including being a medium of exchange, a unit of account and a store of value, the ATO has determined that Bitcoin is not 'money' even at general law, partly because acceptance of Bitcoin is not currently sufficiently widespread throughout the community.1 Further, as it is not a currency legally recognised as the sovereign currency of any nation, the ATO is of the view that Bitcoin is not a foreign currency.2

Nevertheless, the ATO considers Bitcoin to be 'property'3 and, as such, an asset liable to capital gains tax (CGT), such that holders may be subject to CGT for any increased value of a Bitcoin,4 treating them as being similar to shares or other financial products.

GST implications

More significantly for businesses seeking to accept or use Bitcoin, the ATO is of the view that the supply of Bitcoin by a business will be a taxable supply and subject to GST.5 Businesses in Australia that wish to accept or use Bitcoin will need to closely analyse their operations, strategies and business models. This includes businesses which use an intermediary to exchange Bitcoin received from customers into dollars – a common point-of-sale model for accepting Bitcoin – as the Bitcoin transaction between the intermediary and the business may also be subject to GST.

In broad terms, transactions where one business pays another business in Bitcoin will be treated as barter transactions. Although the net economic effect of the imposition of GST may, in some cases, be nil due to the availability of input tax credits, the compliance and administrative burden associated with a transaction using Bitcoin is potentially doubled.

On the other hand, for businesses seeking to accept Bitcoin from customers who are individuals and not registered for GST, the supply by the customer of the Bitcoin will not be taxable. Businesses accepting payment in Bitcoin will need to consider the consequences of treating customers differently where they are using Bitcoin to purchase for personal use or for their business.

This distinction between individual users and business users may lead to some peculiar outcomes, as shown in the following examples.

  • Where an individual Bitcoin user (called, for the sake of this example, Crypto Ken), goes to a bar that accepts Bitcoin, the purchase of a beer with Bitcoin will not result in GST on the supply of the Bitcoin (although will be included in the price of the beer).
  • However, Crypto Ken is a sole trader whose business, Cryptonight Light (selling cryptographically secure night lights) is registered for GST. Cryptonight Light purchases a dozen computers for its business operations from Computer Co using Bitcoin. In this transaction, the payment with Bitcoin will be considered a taxable supply by Cryptonight Light, resulting in compliance obligations and the obligation to remit to the tax office for the GST payable on that supply.
  • This will mean that GST will be imposed on the same transaction two times, for both the supply by Computer Co of the computers and the supply by Cryptonight Light of the Bitcoin.

What will the impact of the rulings be?

One of Bitcoin's perceived strengths is that, due to having no third party intermediary, transactions are simple and transactions costs are low to nil. This will no longer be the case for businesses seeking to use Bitcoin in Australia, with the additional compliance burdens providing a disincentive to use it as opposed to traditional payment methods.

Bitcoin exchanges registered for GST in Australia will likely charge an extra 10 per cent on their supply of Bitcoin to customers to offset the GST imposed. This is likely to give foreign exchanges a competitive advantage, particularly where the customer is not entitled to input tax credits for the purchase of Bitcoin.

Businesses looking to be centred around Bitcoin may choose to structure their operations offshore, to avoid the GST implications. Other businesses simply seeking to accept Bitcoin as a method of payment will look to use intermediaries structured to circumvent these consequences. While regulators in some countries have reached similar conclusions to their Australian counterparts as to how Bitcoin should be treated, such as the United States,6 others have gone the other way, with the UK ruling that Bitcoin is money and exempt from VAT. Given such jurisdictional differences and the diffuse nature of the internet, there may always be an alternative jurisdiction in which Bitcoin-based businesses can operate, and so give rise to forum shopping by start ups.

What next?

The draft rulings will be available for public comment until 3 October 2014.

The ATO's assessment that Bitcoin is not 'money' at general law is partly based on a factual assessment regarding current community uptake. This is an assessment that may change over time.

Further, the ATO has not discussed how it expects the importation and reverse charge rules relating to GST to apply to supplies of Bitcoin.

The fortunes of Bitcoin will continue to wax and wane as regulators around the world grapple with the concept of Bitcoin in their domestic legal systems. The ATO's decision may result in a slowdown of Bitcoin uptake in the Australian market, and, with the possibility of Australian Bitcoin-based businesses moving offshore, the next innovations in relation to digital currencies may not take place in Australia.


  1. TD 2014/D11, para 24.
  2. TD 2014/D11, para 31-33.
  3. TD 2014/D12.
  4. Income Tax Assessment Act 1997 (Cth), s108-5(1). 
  5. See GSTR 2014/D3.
  6. See IRS Notice 2014-21.