There has been plenty of press coverage on bitcoin, but what are the tax consequences if you decide to join the craze? Well, that depends on whether you are running a business, or if you are acquiring bitcoin for personal investment. Here we examine the tax effects if you choose to invest in bitcoin on a personal level.

What is bitcoin?

Bitcoin is the term for a type of cryptocurrency, a digital currency, created in 2009. Bitcoin currency transactions are entered on a peer-networked ledger – called the blockchain – agreed at the same time by multiple hosts. Balances are created and kept using public and private “keys”, long strings of numbers and letters linked through mathematical encryption algorithms. The public key serves as an address to which others may send bitcoin, rather like a bank account number. The private key, which is like an ATM PIN number, is meant to be kept secret and is used to authorise bitcoin transmissions.

Income tax and GST

If you decide to acquire bitcoin as a personal investment, provided you are not carrying on a business of bitcoin investment, you will not be assessed on any profits resulting from the sale. Conversely, you will not be allowed any deductions for any losses made in relation to your bitcoin investment. In addition, there will be no GST consequences for you where the bitcoin transaction is not a supply or acquisition in the course of furtherance of an enterprise.

Beware, however, that whether or not you’re carrying on a business, and whether or not an acquisition or supply is in the course of furtherance of an enterprise, depends on a number of subjective factors. The factors involved in determining whether you are carrying on a business or the furtherance of an enterprise also differ, which means you could be subject to the GST regime and not the income tax regime and vice versa. It is best to consult us to find out about your individual situation and to ensure that any bitcoin activities are not captured under the income tax or GST regimes.

Using bitcoin for purchases

Bitcoin is not only for investment purposes and some people use it in the same way as one would use money.

Where you have bitcoin and you use it to purchase goods or services for personal use, capital gains or losses from the disposal of bitcoin will be disregarded provided the cost of the bitcoin is $10,000 or less.

Where the cost of bitcoin is $10,000 or more, there may be CGT consequences on disposal and you need to keep records including the:

• date of the transaction;
• amount in Australian dollars sourced from a reputable online exchange;
• purpose of the transaction (ie, what it was for); and
• other party’s details (if no other details are available, the bitcoin address would be sufficient).

Unsure? Need more information?

Whether or not you are carrying on a business or making a supply in furtherance of an enterprise could be contentious, especially in cases where large numbers of trades and/or sums of bitcoin are involved. To ensure that you stay on the right side of the tax man contact us today.

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In 2017, the Government flagged and publicised plenty of changes to the tax and superannuation system, but how many of them have actually been passed by Parliament and made into law? Parliament ended its final sitting week in December 2017 with plenty of outstanding matters for the Government to deal with in 2018. Here is a brief summary of these proposals and how they could affect you.

Personal

The Bill that proposes to increase Medicare levy rate from 2% to 2.5% of taxable income for the 2019–2020 and later income years is still before the Senate. Labor Senators have recommended the rate of 2.5% to apply only to those individuals with incomes above $87,000. In addition, they would also like to reinstate the Budget Repair Levy of 2% on taxable incomes in excess of $180,000 which ended on 1 July 2017. Labor has indicated that they will vote against the increase in Medicare levy rate should they not get the desired changes. The Government seems unlikely to agree to the changes to the Budget Repair Levy as requested by Labor, which all points to a difficult passage for the Bill unless the Government can do a deal with the minor parties and/or independents.

Business

The Bill that seeks to progressively lower corporate tax rate is still before the House of Representatives. In its current form the Bill proposes to extend the 27.5% corporate tax rate to all corporate tax entities by 2023-2024, at which point the tax rate would be progressively cut to 25% by 2026–2027. An associated Bill to ensure that a company will not qualify for the lower company tax rate if more than 80% of its assessable income is passive income (ie interest, dividends, or rent) is also before the House of Representatives.

Businesses will need to satisfy a passive income test to access the 27.5% corporate tax rate from 2017–2018.

For the 2016–2017 income year, a company only needed to be carrying on a business and have a turnover of under $10 million to qualify for the 27.5% tax rate. If this Bill passes, small companies set up to invest in property and collect rent would no longer be able to access the lower tax rate if that income consists of more than 80% of its total income. It would be a similar outcome for those companies who invest in shares.

Superannuation

The salary sacrifice contributions integrity Bill is still before the Senate. It proposes to prevent employers from using employees’ salary sacrifice contributions to reduce their own minimum 9.5% super guarantee contributions from 1 July 2018. The Bill also extends the choice of super funds to employees covered by new enterprise agreements and work determinations made on or after 1 July 2018.

Education

The Bill to reduce the Higher Education Loan Program (HELP) minimum repayment income thresholds is still before the Senate. The Bill lowers the minimum repayment threshold from $51,956 to $41,999 from 1 July 2018 with a 1% repayment rate. It also proposes to index the minimum repayment income threshold according to the Consumer Price Index (CPI).

Social security

Bills that implement major social security changes are at various stages before Parliament, including:

• the creation of a jobseeker payment to replace seven existing payments;
• cessation of the widow B pension;
• removing certain exemptions for drug or alcohol dependence;
• establishing a two-year drug testing trial in three regions; and
• changes to residency requirements for the aged pension.

How might these changes affect me?

If you would like to know more about how these changes could potentially affect you, or you would like to consider some forward tax planning for you or your business to get ahead in 2018, contact us today.

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