A fair cop
At least they haven't made it illegal… we'd be living in lala land if we thought it wasn't going to be taxed somehow.
The Australian Taxation Office (ATO) has issued its official assessment of Bitcoin and other crypto-currencies – and decided it isn't money but can be taxed. The ATO's note says BTC is “neither money nor a foreign currency” and that “transacting with Bitcoins is akin to a barter arrangement”. Australia taxes formal barter …
Bitcoin payments are assessed as a fringe benefit. Just like company cars. This means the tax paid is not paid at the individual's marginal tax rate, but at the designated FBT rate - which is currently 46.5% That is what makes it hard to pay people in Bitcoin.
The ATO got it exactly right.
"Bitcoin payments are assessed as a fringe benefit."
I don't get this part. Employees would presumably elect to receive wages in Bitcoin in lieu of AU$ at some exchange rate. Its not like a company car, which is wages plus this extra perk. I can understand the capital gains angle if one's Bitcoin appreciates subsequent to their reciept as wages.
But if the gov't is saying that payment in Bitcoin carries some inherent advantage over that of the national currency, then that's the same as saying the national currency has some disadvantage compared to other payment methods. That's not the position central banks usually take when stabilizing their curencies value in the world markets.
The other way to look at this: By receiving Bitcoins, an employee is electing not to receive wages (in AU$). So could one deduct their uncompensated contribution of labor as a loss?
The ATO is pretty clear, you can be paid in a mix of money and benefits. You could be a fruit picker and take some of your wages as fruit. Work in a brewery and take some of your wages as beer. However, the ATO stance is clear, you pay the tax on the money you are paid, your employer pays the tax on anything that is a fringe benefit. One way or the other the ATO gets a slice of what you earn.
When FBT was first introduced it attracted a lower rate of tax, and it was a great way for some people to get higher incomes at no cost to their employer. However, now it is paid at a rate that makes it unattractive to use fringe benefits for all but the higher income earners, and even then it is marginal.
Bitcoin does not pass the duck test for being money, therefore it is barter, and thence payment is taxed as FBT. That is the start and end of the logic.
@d3rrial
It was also previously the case in Australia IIRC.
In fact, that was true in a lot of countries. The Tax Office was traditionally agnostic about income and outgoings with respect to assessing tax - they didn't care where it came from or to whom you paid, as long as you could prove it happened when they cam knocking for an audit.
Previously, tax records were secret. Not any more, alas.
I'm actually a little confused by the closing paragraph ("There's also some good news . . .") as I took the whole thing to be good news - from both sides.
If people are using something as an asset then it must be addressed by the taxation system to ensure fairness. On the other hand, if something like this is not taxed then its status is always in question, which is not good for those who are using it.
Taxing something of value doesn't really make any statement about its legitimacy or not. Bitcoin isn't illegal, and it does (currently) have value, thus any countries' tax departments will be taking an interest. No different to them taxing you on capital gains, or income paid in kind.
What may be fun is when the next Bitcoin crash comes, whether people will be deducting the loss in value from their taxable income. If your efforts with Bitcoin are viewed as a bona-fide attempt to make money as a business, then they will. Just as they will expect a cut of what is made on rising value when monetised.
"Taxing something of value doesn't really make any statement about its legitimacy"
Yes it does. Its says loud and clear that the powers that be consider it has value as means of exchange. In this case, counting it for FBT purposes says it has the same legitimate value as a car, a laptop or a long liquid lunch. It says this is not a valueless mirage.
"What may be fun is when the next Bitcoin crash comes, whether people will be deducting the loss in value from their taxable income"
I don't believe you can deduct speculative losses in Aus. You would have to actually convert it into South Pacific Pesos first before you can try it on with the ATO. Capital value losses on assets would come under depreciation and is done to a specified schedule. IANATABIODWO*
* I am not a tax accountant but I occasionally drink with one. She could probably dream up a dubious tax avoidance minimisation scheme based around Bitcoins, but the same can be said for US$ or macadamia nuts.
"Considered they are virtually untraceable, I can't see many people declaring them to the tax office."
Untraceable? Whuh? The whole point of bitcoin is that it is traceable. By anybody. Publicly...
At best, all you can do is try and stymie that traceabilty by playing a shell game with disposable bitcoin addresses and wallets. Which starts looking a lot like tax evasion.
Call it what you like but it is easily doable
You can hide your transactions if you want and you can prove that you made them if you want. Bitcoin's system helps you both ways.
And they haven't even implemented an anonymizing transaction system yet like other cryptocurrencies
Sure any formal transaction or payment, like employee salary in bitcoin will be taxable and traceable but the bulk of transactions will not be.
Bottom line is, the authorities will never manage to tax this thing effectively
"Untraceable? Whuh? The whole point of bitcoin is that it is traceable. By anybody. Publicly..."
So bitcoins are traceable? Well that's great news for the exchanges that got knocked off.....
Oh you mean the wallets are traceable but since they have no name on them, they're actually untraceable to anybody in the real world. As traceable as secret unlisted bank accounts.
Considered they can't even work out who invented them, I can't see it working.
Still leaves the tax department up the creek without a paddle.
MtGox is not exactly a stellar example of management in any way. It is actually a perfect example of how not to do things. If I remember correctly, it was even said that its code was based on an obsolete version that had not been patched, or something.
In other words, MtGox was an amateur operation half-heartedly maintained by people who didn't know what they were doing.
A proper exchange will most likely know where its virtcoins are, and who they belong to.
Especially if the taxman starts poking his nose in there. You can bet the trace will become a LOT more precise in that case.
"A proper exchange will most likely know where its virtcoins are, and who they belong to."
Nope.... They will know exactly which coins are in which wallets. Who those wallets belong to not so much, especially in the cases where peeps set things up to work the Dark Side™...
To quote the bitcoin folks themselves:
"All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent. These addresses are created privately by each user's wallets. However, once addresses are used, they become tainted by the history of all transactions they are involved with. Anyone can see the balance and all transactions of any address. Since users usually have to reveal their identity in order to receive services or goods, Bitcoin addresses cannot remain fully anonymous."
> "So bitcoins are traceable? Well that's great news for the exchanges that got knocked off....."
You might like to look at how they happened:
Ignoring the cases where bitcoins were destroyed & nobody realised any value, most were "move magic beans from other wallets to yours, grab cash & run before anyone notices". The more sophisticated were "make magic beans disappear from other wallets, make them again & put them in yours, grab cash & run before anyone notices". In both cases, the weak point in traceability is the "grab cash & run" bit - just like with real world dollars/pounds/renmibi/shekles. The equivalent of faking your VAT statements or not declaring your income...
Of course, you could always live like Lee from The Magnificent Seven - sitting on your big pile of bitcoins, and never being able to spend them...
There's two problems.
The first is that the issue with MtGox wasn't so much that Bitcoin isn't traceable. The issue with MtGox is that the "Bitcoin Banks" hold your money in Bitcoin wallets which belong to them, they aren't regulated as banks and so unless you've got an explicit contract with them about what they will and won't do with the money you've given them, you're SOL. MtGox lost people's bitcoins and was under no obligation to do a damned thing about it and they didn't.
The second is that, once you start actually getting paid in Bitcoins your wallet stops being anonymous. Your employer knows who they sent the money to and that number can be retrieved with a warrant (if they even need that). Bitcoin wallets are anonymous in the same way that IP addresses are anonymous. If you know who either belongs to, they aren't anonymous at all. They know where you get your salary from, so they've got a starting point. A bitcoin starts off in your wallet and ends up at Silk Road a couple hops later, you might see an agent of the government on your doorstep asking you who you sent it do.
It's kind of strange how virtually every news story about Australia makes me glad that I don't live there. Whether it's the deadly wildlife, the higher rates of skin cancer, the extremely high prices for games and movies, or, most often, the highly conservative and regressive policies of the government, taking away people's liberties.
I'm not saying it's not bad in the UK, but the Australian government is becoming a parody of itself. Some articles about it remind me of Poe's Law, e.g. when they banned small breasts.