The government is still to formally legislate to stop the double taxation of digital currencies in Australia, despite promising to do so more than a year ago.
The delays have frustrated and concerned the local FinTech community, with the country’s “outdated” approach to taxing digital currencies putting local tech companies at a disadvantage and forcing some to relocate offshore, the industry lobby group FinTech Australia says.
Under Australia’s current GST laws, digital currencies like bitcoin are not treated as “money” and are consequently double taxed, with GST applied when bitcoin is bought and when it is used to buy a good or service.
The Federal Government first promised to change the definition of digital currencies under the GST Act to stop double taxation in the Treasury’s Backing Australian FinTech statement, released in March last year.
“We won’t be taxing digital currency. Not applying GST to bitcoin and things of that nature, these are the story of changes that support the transformation and the transition of your economy,” Treasurer Scott Morrison said when launching the statement.
The government proposed to change this definition in a discussion paper released in May 2016, with submissions taken until June. The paper outlined how this double taxation issue could be fixed simply by defining bitcoin and other digital currencies as “money” for GST purposes.
The taxation change was a core reform priority identified by Fintech Australia early last year, with Mr Morrison promising quick to act on it.
But more than 14 months later, no further movement has been made and the FinTech community is still eagerly awaiting the draft legislation, FinTech Australia CEO Danielle Szetho said.
“The reality is that it’s just a technical clean-up. Everyone knows it doesn’t make sense and a number of different reviews have said that all that’s needed is an amendment to the definition,” Ms Szetho told InnovationAus.com.
“It’s one of the original priorities we put in the reform paper and one they said yes to. But here we are, 14 months on and still nothing,”
By all accounts the government is still committed to act on the issue, but it is far from a priority.
“This is a very technical piece of work which no-one could argue with, and it could be put through Parliament very quickly. We’ve been told that it is going through but it needs to be prioritised on the agenda, but it just hasn’t. They’re working on it but something else just keeps coming up. We’re a bit disappointed with the delay,” Ms Szetho said.
A spokesperson for the Treasurer offered little as to how the legislation is progressing.
“We will have more to say about these matters in due course,” the spokesperson told InnovationAus.com.
The double taxation issue came to a head in late 2014 when the ATO ruled that bitcoin was an “intangible property”, meaning that it would subject to GST itself.
Following that decision, the Senate Economic Reference Committee conducted a review and decided that double taxation should be removed. This was backed up by the Productivity Commission, which released its own report in August 2015.
The government’s discussion paper last year promised the release of draft legislation, but this is yet to be delivered on.
It’s not a controversial issue, with broad support for the changes coming from both the banking sector and FinTech startups, and the legislation is likely to easily pass Parliament with support from the Opposition.
The government’s discussion paper received 14 submissions in total, all in favour of amending the GST Act to define digital currencies as “money”.
While the local sector waits, several other countries have moved on the issue.
The European Union altered its laws in October 2015 to ensure digital currencies were not double taxed, while Japan made the same move in March 2016. The UK has had a similar policy in place since March 2014.
FinTech Victoria CEO and The Week in Bitcoin founder Alan Tsen has been working on this issue for more than two years now, and said Australia is falling behind the rest of the world while the government delays.
“It will happen – the Treasurer has signalled that a long time ago that they have a commitment to changing this. But when you see things like Japan making changes to their laws it really brings home the fact that we’re not moving as quickly as we can to solve this,” Mr Tsen said.
“It’s a simple process and the technical stuff is relatively straightforward.”
The protracted wait could damage Australia’s innovation and FinTech sector and put local tech firms at a disadvantage on the world stage, Ms Szetho said.
“We’re seeing explosive growth of bitcoin and digital currencies out of the US and China, and Australia has very close ties with them.
“I would have thought that a lot more companies would have emerged in this area so more consumers could be using lots of these services and digital currencies,” she said.
“Australians are early adopters, but the uptake has been limited because no-one is certain about how they might be taxed. It has slowed the adoption of these new currencies in Australia.”
This is something that the government itself recognised in its discussion paper on the matter.
“Besides disadvantaging consumers, this ‘double taxation’ treatment creates a competitive disadvantage for the use of digital currencies as a means of exchange, when compared to ‘flat currencies’, such as the Australian dollar and foreign currencies,” the paper stated.
The confusion around taxation has had the biggest impact on smaller tech firms, Mr Tsen said.
“Any time there’s a lack of clarity in the law it causes people to take slower steps towards doing things like building out their startup.”
“A lot of people are treading very carefully around digital currency because there are still things like double taxation not being moved on – people are still unclear. The impact is clearly going to be on the startups trying to build a product in this space,” he said.
The government has positioned FinTech at the centre of its innovation efforts, but its lack of action on this issue and the controversies surrounding its equity crowdfunding legislation have led to questions surrounding its ability to deliver on its large commitments to the sector.
While the government has promised some announcements on the issue in the near future, the local tech community isn’t getting its hopes up.
“We’re always getting told that they’re looking at it very soon, that it’s pretty technical and not controversial. We have heard more recently to expect some announcements but we’ve been told that a few times now so we’ll wait until there’s an actual announcement,” Ms Szetho said.