Summary of This Article:
Essentially, the ATO’s view on cryptocurrencies such as bitcoin is that they are assets and not considered a currency or a foreign currency for tax purposes. This means it is not considered to be a “financial supply” for the purpose of Goods and Services Tax (GST). That’s right, if your business sells its goods or services for Bitcoin then there are NO GST implications.
In this Article:
The Basics of Bitcoin and Cryptocurrency
Bitcoin is a widely misunderstood financial tool and investment. This article aims to simply explain what bitcoin is and why you should care. Bitcoin is and always has been 100% secure, decentralised and safe to use. It is completely and legal to buy, sell and use. Bitcoin has never been hacked and nor can it be.
What is Bitcoin?
Bitcoin is a type of digital currency (cryptocurrency) that doesn't require a bank or any other institution. Bitcoin is and always has been 100% secure, decentralised and safe to use. It is completely and 100% legal to buy, sell and use. Bitcoin has never been hacked, nor can it be.
Unlike regular currency (fiat money) you can buy or transfer Bitcoin in an amount as low as $0.00005 (0.00000001 BTC or one "Satoshi") which is equal to one one hundred millionth of a bitcoin.
One of the most important features of bitcoin is that unlike regular currency, such as Australian Dollars (AUD) or U.S. Dollars (USD), Bitcoin is mathematically limited to $21 million bitcoins. Governments such as ours have the capacity to print money, causing inflation and that devalues the AUD.
Bitcoin is and always has been 100% secure, decentralised and safe to use. It is completely and 100% legal to buy, sell and use. Bitcoin has never been hacked, nor can it be.
What is Cryptocurrency?
Bitcoin is the original cryptocurrency and there are over 900 newer cryptocurrencies. Most of these do not and likely will not serve any long term purpose. However, many have endless use cases and will be around for many years to come.
Who Made Bitcoin?
Bitcoin was released under the (fake) name "Satoshi Nakamoto", the true identity of its true creator, or creators, is unknown and there is a good chance it always will be. Satoshi Nakamoto first published information about bitcoin his white paper on 31 October 2008 to a cryptography mailing list in a research paper called "Bitcoin: A Peer-to-Peer Electronic Cash System".
What is a Blockchain?
Blockchain is the disruptive technology behind bitcoin and other cryptocurrencies. A blockchain is simply a long list (or "chain") of transactions in the order they occur. This chain of transactions is split up into "blocks", and each block has a size limit, eg: 1mb. This long "chain" of "blocks" (a blockchain) contains the entire history of transactions that have occurred. When new transactions are made they get added to the chain.
By storing an encrypted copy of every transaction that has ever occurred at hundreds of thousands of points across the world, the network is able to be un-hackable.
Transactions occur when they are sent to the bitcoin network, this adds them to a list of pending transactions where they are processed by powerful computers simultaneously. This process is called "mining", the computers doing the work receive a small amount of bitcoin for every block that gets processed (mined). Each point or "node" on the network that processes transactions must have the complete transaction history in order to be valid.
This process happens simultaneously at random points all over the globe. Each point maintains an identical transaction history, this avoids the issue of "double spending" and network hacks.
By storing an encrypted copy of every transaction that has ever occurred at hundreds of thousands of points across the world, the network is able to be un-hackable.
Did you know?
Bitcoin did not use any technology that wasn't present in the year 2000. Bitcoin could send money from Australia to Europe, the U.S. and back again in well under 5 minutes. This transaction would be far cheaper and no more secure than a bank transfer. To transfer from Aus to Europe via bank transfer would be take longer than catching a plane and flying it there yourself.
Why Use Bitcoin?
Bitcoin Tax In Australia:
Recently the Australian Taxation Office (ATO) has updated legislation, for a summary of this have a look at our article on bitcoin tax in Australia. As it would be very difficult to tax, Bitcoin is not treated as a currency by the ATO.
In the eyes of ATO spending bitcoin is the equivalent of bartering. This means there is No GST when you buy or sell goods and services with bitcoin. Bitcoin is only subject to capital gains tax (CGT).
Bitcoin As An Investment:
Bitcoin has been an extremely profitable investment for many and bitcoin as well as other cryptocurrencies continue to be.
Is it too late to invest in Bitcoin?
Asking this is like asking whether it is too late to invest in gold. Bitcoin is often related to gold as both have a limited finite supply, as no more than 21 million can ever be created. Bitcoins price continues to rise as its use and mainstream adoption proliferates.
How To Get Bitcoin
Bitcoin can be bought on exchanges, much like how stocks are bought. Bitcoin exchanges are completely safe to use. Although Bitcoin has never been hacked, exchanges do occasionally. Exchanges such as Coinbase are a great service as they have a long history of supporting users should something go wrong. We recommend Coinbase if you are new to Bitcoin.
Coinbase offers Bitcoin, Ethereum and Lightcoin. Once you have purchased and played around with your cryptocurrency you can easily withdraw it and use it on exchanges such as Bittrex, Poloniex and Kraken. However, you'll need to purchase your bitcoin elsewhere first and transfer it to these exchanges.