The Australian economy is in the midst of a major transformation, moving from growth led by investment in resources projects to broader-based drivers of growth in the remainder of the economy. The Australian Government is facilitating this transition from a mining boom to an ideas boom through policy changes that encourage new ideas and propel innovation. Central to the transition will be innovation in financial technology.  

One area that has been in the spotlight for a while concerns the ‘double taxation’ of digital currencies under the Goods and Services Tax Act 1999 (GST), which has been a significant impediment to ongoing take up of digital currencies in Australia.

Broadly speaking, digital currency is a representation of value that can be digitally traded and is not denominated in legal tender. Most digital currencies use cryptographic techniques to ‘prove’ that a transaction has occurred and ensure the integrity of the system. Created in 2009, Bitcoin was the one of the first digital currencies.

In response to the development and growth in the use of digital currencies, and the need for certainty, the Australian Taxation Office (ATO) released a series of rulings on the GST and income tax treatment of Bitcoin in December 2014. For the GST treatment of Bitcoin, the ATO ruling outlined that Bitcoin was considered a form of ‘intangible property’ and as a result any domestic supply of Bitcoin, in exchange for money would be subject to GST. In addition, domestic transactions where Bitcoin was exchanged for other taxable goods and services were akin to a barter transaction and were also subject to GST. Crucially, this treatment resulted in transactions where consumers use Bitcoin to pay for other goods and services bearing GST twice – once with the embedded GST borne on the acquisition of the Bitcoin and then on its use in exchange for other goods and services.

On 21 March 2016, the Australian Government signalled its support for the transition to innovation in financial technology by issuing the Treasurer’s Backing Australian FinTech statement. The Treasurer’s statement included a commitment to address the ‘double taxation’ of digital currencies under the GST.  In particular, the statement noted that the “Government recognises that that the current treatment of digital currency under GST law means that consumers are ‘double taxed’ when using digital currency to buy anything already subject to GST,” states the Treasury department. “The Government is committed to addressing the ‘double taxation’ of digital currencies and will work with the industry on legislative options to reform the law relating to GST as it is applied to digital currencies.”

Not long afterwards, the Australian Government issued a Discussion Paper concerning the GST treatment of digital currency on 3 May 2016. This consultation, which received 14 submissions, closed on 3 June 2016. However, much to the frustration of the FinTech community a year then passed before further steps were taken (see below). The frustrations stemmed from the lack of prioritization of the issue.

On 29 June 2017, the Australian Government announced that as part of the 2017-18 Budget it would remove the double taxation of digital currency from 1 July 2017. From 1 July 2017, digital currency will be treated just like money for GST purposes. The Australian Government has released exposure draft legislation and explanatory material for amendments to give effect to this announcement. The draft legislation will have a retrospective start date of 1 July 2017. The public consultation on the exposure draft legislation and explanatory material will run for four weeks, closing on 26 July 2017.