This recent stance by the Committee is contrary to that of the Tax Office ruling in 2014. The ATO then stated that bitcoin was “neither money nor a foreign currency”, and that it won’t be exempted from the goods and services tax as an “intangible asset” and other taxes. The ruling seems influenced by the realization that taxing bitcoin and another crypto-currency is a source of tax revenue that can no longer be left untapped.

Taxpayers Australia, acting as an independent watchdog, was requested to put forward its opinion on issues concerning bitcoin. It made submissions to the government on crypto-currency especially on its effect and implications on the tax system. The submissions were taken into account by the Committee, and Taxpayer Australia’s stance is referenced in the final report.

In its submission, Taxpayers Australia stated that bitcoin is a “foreign currency”, basing its assertion on:

• the Currency Act 1965 whose provision and application clearly preclude bitcoin from being a currency or foreign currency for income tax law purposes, and
• that bitcoin by virtue and definition of its name is a “currency”.

It also established two integral issues that facilitated the Tax Office’s stance on bitcoin. One has to do with an accepted principle circling the existing tax laws. The principle states that the legal definitions for tax use can co-exist with those of existing general law, but will be different and fluid enough to meet the needs of the relevant law. Furthermore, that these definitions and applications will and should evolve as technology and methods change.

Taxpayers Australia referred to the Australian court case of Lake Macquarie Shire Council v Aberdare County Council as an example to buttress its point. In that case, the word “gas” encompassed newly developed forms of gas, despite the fact that when the law in question was ratified, only a few number of substances were referred to as “gas”.

The Tax Office’s stance has, of course, had its effects despite prior warnings of such effects from several fronts. One of the warnings centred on the harm such stance would have on the financial and technological markets, and how such a stance can choke innovation on new payment gateways and technology.

The Tax Office was also warned that imposing GST on the crypto-currency could force digital currency companies to relocate. This has since been a self-fulfilling prophecy as Coinjar – Australia’s then biggest crypto-currency platform – left to set up its headquarters in Britain. Britain exempts consumption tax on all digital currencies whether value added or VAT.

Even though the Senate Committee has acknowledged the advantages and opportunities of digital currencies, it, however, cautioned that there’s more to do before the Australian Securities and Investments Commission and other regulators can properly handle bitcoin.