Following the release of the 2016 Federal Budget, some people are predicting that Australian is set to become a world leader in digital financial transactions, most notably ‘Bitcoins’.

Bitcoins?

Bitcoins are a digital currency – if you want the specific technical term, they are a ‘digital cryptocurrency’. A bitcoin is an encrypted code sent between two people on a peer-to-peer network and added to the public ‘blockchain’. The blockchain is a distributed ledger that records who owns what, and so underpins bitcoin.

There are at least 600 different digital currencies currently in play in the digital space, but Bitcoin is the most well-known and widely used. The Bitcoin industry is estimated to be worth at least $14 billion. It has no central authority or government backing.

Bitcoin has been in the news recently for two main reasons. Firstly, an Australian, Craig Wright, has claimed to be the founder of Bitcoin. He says he has millions in Bitcoin that he is slowly releasing into the market to avoid devaluing the currency.

The second reason is that the Australian Government has announced some changes that could affect us all in the future.

Until now, the Australian Tax Office has treated Bitcoins and other digital currency as ‘assets’, rather than ‘currency’. Considered a type of barter, they were subject to GST, capital gains tax, and fringe benefits tax.

In effect, Bitcoin transactions were being double-taxed, and the argument has been that this has stifled the growth of digital-based industry in Australia. A parliamentary inquiry into digital currencies made recommendations to significantly change tax laws relating to digital currencies, including Bitcoin, in August 2015.

In March, the Australian Government announced that the ATO will now tax digital currency a flat rate of 10%. These taxation changes, along with some measures to prevent digital currencies being used for money laundering and other illegal activities, should mean digital currencies could be much more widely used in future. For example, they may radically change how money is transferred between financial institutions.

The Australian Stock Exchange (ASX) is also looking into digital currencies. The Australian Securities and Investment Commission (ASIC) is investigating how this type of financial technology can have an appropriate regulatory regime in order for it to be properly tested in Australia.

CSIRO’s Data61 is exploring the potential of Bitcoin and the wider use of the underpinning blockchains with the Commonwealth Department of Treasury. They plan to develop a few proofs of concepts to explore potential opportunities for Australian business.

No doubt this will be a new area for we accountants to get our heads around, but rest assured that the Hart Partners team is keeping abreast of developments.