As is ever proving to be the trend, cryptocurrency has continued to become more integrated in the Australian commercial world, with businesses beginning to accept cryptocurrency as a means of payment for goods and services. Businesses ranging from large law firms down to simple retailers such as local bakery have begun accepting cryptocurrency in lieu of regular fiat currency. As crypto becomes a more viable means of accepting payment, it’s important that businesses are aware of the accompanying taxation obligations.
Reasons for accepting crypto include that the transaction fees are generally lower and transactions can be quicker than traditional banking systems. In the case of international transactions, the decentralized nature of cryptocurrency can make the process easier and more affordable, as well as avoiding any additional international exchange fees. Given cryptocurrency is treated as a property, the payment of crypto is also irreversible which lowers the risk of fraud for businesses where traditional transfers might be reversed by the customer. An obvious downside is the volatility of cryptocurrency value, which means that the exact amount of any given cryptocurrency to be transferred might not be decided in exact terms until the time of the transfer.
Tax Treatment for Cryptocurrency Payment
The ATO has declared that cryptocurrency received for goods and services will be treated the same as non-cash bartering and as such the business may have to pay GST on the cryptocurrency received under a barter transaction.
Cryptocurrency received for the provision of goods and services must also be declared as income for the business, expressed in its Australian dollar value at the time of transfer. The ATO has been relatively silent in how this value must be calculated but has stated that it will accept the market value as derived from the exchange rate on registered and reputable cryptocurrency exchanges.
When a business proceeds to use its cryptocurrency holdings to purchase an asset the business will be entitled to a deduction based on the market value of the acquired item.
Payment in Lieu of Employment Benefit
As well as accepting cryptocurrency as a means of payment there has also been an increase in cryptocurrency being awarded to employees as a fringe benefit. The ATO has declared that such payments will be subject to the Fringe Benefits Tax Assessment Act 1986 and will be taxed as such. This means that the employer will have a tax obligation, separate from their income tax, and will be paid at the highest tax rate. However, the employer will generally also be able to claim an income tax deduction for the cost of providing fringe benefits and for the fringe benefit tax they pay, the business will also be able to claim a GST credit for items provided as fringe benefits. Fringe benefit tax will be calculated as the value of the cryptocurrency established at the time the cryptocurrency was transferred to the employee.
AUSTRAC in 2018 was granted authority to oversee cryptocurrency exchanges and to monitor transactions. While the government has difficulty in monitoring cryptocurrency transfers given their anonymous nature, the appearance of large sums of money in Australian accounts has been said by AUSTRAC to warrant investigation into whether cryptocurrency has been traded and whether any taxation obligations may arise. Businesses should be conscious that obligations do arise from trading cryptocurrency and that AUSTRAC is monitoring such transactions to ensure obligations are complied with.
Keystone Lawyers has been following recent development in integration of cryptocurrency into the Australian market and is available to provide legal expertise on any cryptocurrency related inquiries.