In March, the Australian government released a multi-faceted policy statement on financial technology that included items on both digital currencies as well as broader blockchain applications.
Included in the policy statement was a declaration from the Australian Treasury that it would seek avenues to reduce the goods and service tax (GST) effectively applied twice to bitcoin users in the country, both when they purchase digital currency from a seller – an event that triggers GST – and again if they go on to use it to make a purchase.
Earlier this week, the government released a discussion paper that outlines possible fixes to the situation. Produced by the Treasury, it draws insights from a report prepared by the Australian Senate.
One option, according to the government, is to make digital currencies an “input taxed financial supply” – similar to to how the trading of shares and loans is taxed.
The report states:
“Making the supply of digital currencies an input taxed financial supply would mean that no GST is required to be collected and remitted on their supply, eliminating the ‘double taxation’ of consumers. Digital currency suppliers (such as a digital currency trader) and financial institutions would likely not be entitled to full input tax credits for acquisitions related to these supplies.”
A deeper change would involve treating digital currencies in the same category as money – a move suggested by the Australian Senate last year.
“Making digital currency equivalent to ‘money’ for GST purposes would mean that the payment of digital currency in exchange for goods or services would generally no longer constitute a ‘supply’ for GST purposes,” the report explains. “As such, no GST would be required to be charged or remitted on the digital currency provided, although GST may still apply to the supply of the goods and services that the digital currency is exchanged for.”
Lastly, the government said that it might simply deem digital currencies as completely exempt from GST – though this option, the paper states, would grant “preferential treatment” that could “distort markets in other ways”.
At this stage, it’s too early to say which avenue is most preferred – though the Senate’s support for the second option could swing favor in that direction. However, the move is likely to be welcome for Australian digital currency advocates, who have been calling for such changes to be implemented.
The Treasury is seeking public feedback on the suggested proposals, with the comment period set to end on 3rd June.
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