And why they may become the future of money.
Bitcoin. You may have heard it mentioned recently in the media – maybe not. But you will be hearing a lot more about it in the near future. Why? Because it may soon be recognised as money under the Taxation Act – even though it isn’t currently.
o what exactly is Bitcoin? Basically a Bitcoin is a form of digital or virtual currency that can be used without the need of a central bank. It is part of a new breed of secure online currencies or ‘crypto-currency’ that uses embedded coding as part of its security and anti-counterfeiting measures.
With the internet continuing to dramatically change the way business is done, more and more people are rejecting physical cash in favour of digital currency. Bitcoin seems like a logical evolution in the way individuals use money online.
Founded in 2009, it took a little while for it to build up market users. But now the Australian Taxation Office (ATO) is taking this emerging currency seriously, recently defining Bitcoin as an intangible asset, not money, however the industry continues to call for it be finally categorised as money.
However at the moment, the Taxation Act will only recognise currency given government decree, and so the ATO cannot legally define Bitcoin as money.
But…this definition may very soon become obsolete and may need to be changed by the federal parliament in order to keep up with the growing online market.
Right now there are around 13 million Bitcoins in circulation, attaining a market value of about $6.9 billion, with 7% of Bitcoin currency being held by Australians. In Australia Bitcoin is being accepted by Dell for its online products, as are a number of other smaller online retailers. Other small shops such as coffee stores, bookstores and other outlets are also starting to accept Bitcoin. In fact there are around 1000 Bitcoin accepting businesses in Australia, according to the Tax Office.
This has allowed for many businesses to grow, as more individuals find the prospect of Bitcoin appealing. Here’s why:
- There is no debt
- There is a flat 1% fee on all transactions
- No monthly charges
- No sign up costs
- No termination cost
- No banking fees
- It’s instant! Meaning you don’t have to wait for your money to come through.
NAB estimates that Australians spent around $15.5 billion on online retail in the last 12 months. Many hoped that with this growing online market, Bitcoin would finally be accepted as real currency.
However the ATO has had something to say on the matter and they’ve come up with some current guidelines for how Bitcoin use in Australia will be treated from a taxation perspective
Current ATO guidelines for Bitcoin
- People using Bitcoin occasionally, only making small purchases, under $10,000 will likely be ignored by the tax office (according to ATO spokespeople).
- Those using crypto currencies for profit and business will need to pay taxes such as capital gains, fringe benefits and GST, and records must be kept – this might actually be quite onerous.
- People who ‘mine’ Bitcoin will need to include this as income if they sell the asset
- Purchasing of computer equipment for Bitcoin mining is allowed as a deduction
And so with these new guidelines, it would appear that the ATO are taking the growing usage of Bitcoin seriously.
If you’re considering using Bitcoin (or other cryptocurrencies) or investing in it as an asset class, we suggest as with all things financial, that you seek advice from a professional. If we can help, we’d love to talk further. You can call Kerry on 6023 1700, drop us a note or connect with Kerry via LinkedIn.