Many in the Australian digital currency ecosystem were pleasantly surprised when in this year’s Budget the Australian Treasurer announced an effective date for the removal of ‘double GST’ on digital currency transactions. Effective 1 July 2017, the purchase of digital currency will no longer be subject to Australian GST. In effect, this will result in digital currency being given the same GST treatment as money.
However, more importantly, this would make Australia only the second country (the first being Japan) in the world to make actual amendments to their tax laws to accommodate digital currencies.
As it currently stands, when a consumer purchases an item using digital currencies they bear GST twice – once when they purchase a digital currency and secondly when they purchase the good or service which is subject to GST using a digital currency. On this basis, digital currencies are at a disadvantage as compared to fiat currency when it comes to using them for transactional purposes.
Although, much of the initial debate surrounding the GST treatment of digital currencies revolved around bitcoin, the provisions are broader and will likely include other similar digital currencies (Etc, Zcash etc). This is especially important to note given the recent and persistent rise of ICOs (initial coin offerings). In effect, these changes allow for innovation in the digital currency space without the unintended application of GST to transactions involving them.
In the Government’s ‘Backing Australian FinTech’ statement made on 21 March 2016, they committed to fixing this impediment to the growth of the Australian digital currency ecosystem. After this, a discussion paper was released in May 2016 regarding the possible amendments that could be made to the GST Act to remove ‘double GST’ on digital currencies. This paper called for submissions from industry participants on a number of technical implementation issues. After submission closed much of the digital currency community has eagerly awaited the implementation date.
As someone who’s been involved with petitioning government for these changes, it is positive to see them finally commit to an effective date for the amendments. This again highlights the progressive thinking the Australian Government is showing in the fintech space to ensure that regulatory impediments to industry growth are removed.
What has been released so far by Treasury is an effective date for the amendments. However, the draft legislation has not yet been released. This means that there are a number of important tax technical questions that still need to be answered. Specifically, how will digital currency be defined? How has treasury chosen to actually make the amendments to the Act (the so called input tax vs money treatment)? These are still unknown.
Having said this, these are all things that will likely be resolved in the next few months. The important thing to remember is that effective 1 July 2017 Australians will not subject to ‘double GST’ on digital currency transactions in Australia – which is great news for the future of the industry.