As digital currency becomes more common-place in a business context both in terms of trading and using such assets for payment in Australia, one question that commonly arises for those businesses will no doubt be: does GST apply to crypto-assets? The answer, according to the ATO, depends on the context in which the crypto-assets are being used.
The many types of crypto-assets can be broadly divided into 2 categories, those considered to be digital currency and those that are not. Generally, digital currency is anything that uses cryptography and block-chain technology to secure and record transactions (eg Bitcoin and Ethereum) and encompasses the following characteristics: fully interchangeable with the same digital currency; can be provided for payment; available to the public free of any substantial restriction; is not denominated in any country’s currency, or is denominated in a currency that is not issued by or under the authority of an Australian or foreign government; does not have value that is derived from or dependent on anything else; does not give entitlement to receive something else unless it is incidental to holding it or using it as payment; if supplied, would not be an input-taxed financial supply for a reason other than being a supply of digital currency or money.
Crypto-assets that are not considered to be digital currency include non-fungible tokens (NFT), Stablecoins, and Initial coin offerings. NFTs are not considered to be a digital currency because they cannot be interchanged with other NFTs, the supply of which are usually deemed to be taxable unless they are GST-free. Stablecoins are crypto-assets that are pegged to the value of some other asset such as a commodity or more generally a fiat currency (ie US dollar), and are not considered to be a digital currency. In addition, initial coin offerings are not considered to be digital currencies if they are a security (including a share or managed investment scheme), a derivative, or gives a right or entitlement to goods and services. If an initial coin offering is a security or derivative, the supply will be input-taxed unless its GST-free. If the offering gives a right or entitlement to goods and services, the supply will be taxable, unless the entitlement is incidental or the supply is GST-free. It should also be noted that the ATO does not consider loyalty points that can only be redeemed for goods and services under the loyalty scheme and in-game tokens that cannot be used outside the game, to be digital assets.
For those trading in digital currency in exchange for money or digital currency with an Australian resident who is located in Australia, the supply will be an input-taxed financial supply and GST does not need to be paid. Digital currency traded in exchange for money or digital currency with a non-resident (not located in Australia) would be GST-free. If the location of the counterparty to the digital currency transaction cannot be identified, taxpayers can use the location of the digital currency exchange to treat the supply as either GST-free (if the exchange is not located in Australia), or input-taxed (if the exchange is located in Australia). Digital currency used to pay for goods and services in a GST-registered enterprise will be treated in the same way as money. If a taxable supply is made and digital currency is received as payment, the GST amount for that payment will need to be included in the relevant BAS and must be in Australian dollars. Conversely, where digital currency is used to make a purchase in a GST-registered enterprise and a GST credit is claimed, the GST amount of the credit in the BAS must also be in Australian dollars. The exchange rate can either be obtained from a digital currency exchange website, or agreed on between supplier and recipient. For taxpayers that account for GST on a non-cash basis, the day to convert the amount is the earlier of the day the payment was received, or the transaction date or invoice date. The conversion date for taxpayers that account for GST on a cash basis can be the transaction date, invoice date or the date any of the payment is received.
Speak to one of our accountants if you have any questions about the changes in tax for 2023.
