The GST Act (A New Tax System (Goods and Services Tax) Act 1999) is being amended to ensure that supplies of digital currency receive equivalent GST treatment to supplies of money.
Under the changes, supplies of digital currency made on and after 1 July 2017 will be disregarded for GST purposes unless the supply is undertaken in exchange for a payment of money or digital currency.
To give effect to this money-equivalent treatment of digital currency, the amending Bill inserts a definition of "digital currency" into the GST Act. In arriving at this definition, the drafters have taken into account two considerations:
- the significant risk that any definition based on the current architecture of cryptographic currencies (like Bitcoin) may lose relevance if new technical approaches emerge; and
- the existence of a number of types of digital assets that bear some similarities to digital currencies, but which are not treated as currencies, generally because either they are rights to particular things rather than having value only as a medium of exchange, or they are dealt with appropriately under the existing law.
Accordingly, the definition has been framed in terms of digital currency needing to have broadly the same features as state fiat currencies (legal tender). In particular, in the same way as state fiat currencies, the value of a digital currency must derive from the market's assessment of the value of the currency for the purposes of exchange, despite it having no intrinsic value. The units must be capable of being consideration for any type of supply, and must be generally available to the public, free of any substantial restrictions on their use as consideration.
The definition also requires that digital currency must not have a value based on the value of anything else. Hence, units will not be digital currency if they are denominated in another currency, for example with a value pegged to the Australian or United States dollars.
Units are not digital currency – even if they have independent value and are fully transferable – if they provide the holder with benefits, entitlements or privileges, such as memberships or vouchers, other than an entitlement that is incidental to holding the unit or using it as consideration.