Gst & bitcoins slides- Potential Pitfalls
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Gst & bitcoins slides- Potential Pitfalls

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Gst & bitcoins slides- Potential Pitfalls Gst & bitcoins slides- Potential Pitfalls Presentation Transcript

  • GST & Bitcoins – Potential Pitfalls Matthew Cridland, Partner Melbourne 10 July 2014
  • AGENDA  When does GST apply?  Are Bitcoins "money"?  Do the foreign exchange provisions apply?  Example  Practical issues  Cross border transactions Date of presentationInsert filename here 2
  •  If a GST registered business owns bitcoins, it will likely do one of two things:  sell the bitcoins to convert to AUD or another currency; or  use the bitcoins to purchase goods, services or other things.  If the above occurs in Australia, should a GST liability arise?  What is the result under the current GST Act? Date of presentationInsert filename here 3 When does GST apply?
  •  GST applies to "taxable supplies" GST Act, section 9-5: You make a taxable supply if: (a) you make the supply for consideration; and (b) the supply is made in the course or furtherance of your enterprise; and (c) the supply is connected with Australia; and (d) you are registered or required to be registered. Date of presentationInsert filename here 4 When does GST apply?
  •  What is a "supply"? GST Act, section 9-10: (1) A supply is any form of supply whatsoever. (2) Without limiting subsection (1), a supply includes any of these: (a) …. (e) a creation, grant, transfer, assignment or surrender of any right. Date of presentationInsert filename here 5 When does GST apply?
  •  Exclusion for "money" GST Act, section 9-10(4): However, a supply does not include a supply of money unless the money is provided as consideration for a supply that is a supply of money. Date of presentationInsert filename here 6 When does GST apply?
  •  An AFL Club has agreed to provide sponsorship rights to a mobile phone company for $200,000, plus GST of $20,000.  AFL Club is making a supply of sponsorship rights – GST applies.  The mobile phone company is paying money, which is not a supply – no GST applies.  The only party liable for GST is the AFL Club.  The mobile phone company can claim back the $20,000 as a full credit. Date of presentationInsert filename here 7 Example One
  •  Another AFL Club enters into a sponsorship arrangement with a competing mobile phone company. The sponsorship is also worth $200,000, plus GST of $20,000.  Instead of paying cash, the mobile phone company agrees to provide mobile phones and services to the club valued at $220,000.  The AFL Club is making a supply of sponsorship rights – GST applies.  The mobile phone company is supplying phones / services – GST applies.  Both parties have a GST liability of $20,000 and can claim a credit of $20,000.  This is a "barter" transaction. Date of presentationInsert filename here 8 Example One (continued)
  •  Another AFL Club enters into a sponsorship arrangement with a competing mobile phone company. The sponsorship is also worth $200,000, plus GST of $20,000.  Instead of paying cash, the mobile phone company agrees to provide mobile phones and services to the club valued at $220,000.  The AFL Club is making a supply of sponsorship rights – GST applies.  The mobile phone company is supplying phones / services – GST applies.  Both parties have a GST liability of $20,000 and can claim a credit of $20,000.  This is a "barter" transaction. Date of presentationInsert filename here 9 Example One (continued)
  • Example One (continued) Date of presentationInsert filename here 10 • What would be the result if one of the mobile phone companies provided $220,000 worth of bitcoins? • Is that: • a payment of "money" which is ignored for GST purposes; or • a barter transaction which triggers a GST liability?
  •  Definition of "money" GST Act, section 195-1: Money includes: (a) currency (whether of Australia or of any other country); and (b) promissory notes and bills of exchange; and (c) any negotiable instrument used or circulated, or intended for use or circulation, as currency (whether of Australia or any other country); and (d) postal notes and money orders; and Date of presentationInsert filename here 11 Are Bitcoins money?
  • (e) whatever is supplied as payment by way of: (i) credit card or debit card; or (ii) crediting or debiting an account; or (iii) creation of transfer of a debt. However, it does not include: (f) a collector's piece; or (g) an investment article; or (h) an item of numistic interest; or (i) currency the market value of which exceeds its stated value as legal tender in the country of issue. Date of presentationInsert filename here 12 Are Bitcoins money?
  •  Coffee Co, a GST registered coffee machine retailer, accepts Bitcoins.  Coffee Co sells a Nespresso coffee machine to Rebecca. The price is either AUD $220 or BTC 0.38. The GST payable depends on whether Rebecca chooses to pay in AUD or BTC.  If Rebecca pays in AUD, the GST payable on the sale is AUD 20 (1/11th of AUD 220).  If Rebecca pays in Bitcoins, the GST payable on the sale depends on the Bitcoin price at the time of payment. If the Bitcoin price at the time of purchase was BTCAUD 600, then the GST payable on the sale is AUD 20.73 (1/11th of AUD 228 (0.38 x 600)). Date of presentationInsert filename here 13 Example Two
  •  After selling the coffee machine, Coffee Co decides to retain the bitcoins for use in funding its own purchases of new stock.  Using the BTC 0.38 received from Rebecca, Coffee Co orders two new Nespresso machines (market value of $110 each) from a wholesaler who also accepts Bitcoins.  The wholesaler is liable for GST on the sale of the coffee machines to Coffee Co.  Is Coffee Co liable for GST on its supply of BTC 0.38 to the wholesaler?  Is this a barter transaction, or a payment of "money"? Date of presentationInsert filename here 14 Example Two (continued)
  •  Even though Coffee Co receives bitcoins, it needs to notionally convert the payment received to AUD so that it can:  calculate the GST payable on the sale of the coffee machine; and  state the amount of GST on any "tax invoices" that are issued to customers.  Any GST payments must be made in AUD, even if the total invoice amount is received in bitcoins. Date of presentationInsert filename here 15 Practical Issues
  •  GST does not apply to foreign exchange transactions. GST Regulations, Reg 40-5.09(3), Item 9: Australian currency, the currency of a foreign country, or an agreement to buy or sell currency of either kind. Date of presentationInsert filename here 16 Foreign Exchange Provisions
  •  Assume Rebecca purchased her coffee machine in bitcoins. Coffee Co decides to immediately sell the 0.38 BTC it received from Rebecca. The sale is to an Australian buyer who pays $220.  If that sale is a taxable supply, a second GST liability of $20 will arise.  This arguably results in "double GST", being:  GST of $20.73 on the sale of the coffee machine; and  GST of $20 on the sale of 0.38 BTC.  In net terms, Coffee Co will only retain approx $180 on a $220 sale. Date of presentationInsert filename here 17 Example Three
  •  Supplies of rights can be in some instances be "GST-free".  GST Act, section 38-190(1) Item 4 "a supply that is made in relation to rights if: (a) the rights are for use outside of Australia; or (b) the supply is to an entity that is not an Australian resident and is outside of Australia when the thing supplied is done."  Travellex Case involving Fijian currency Date of presentationInsert filename here 18 Cross Border Transactions