Bills Digest No. 44,
2017–18
PDF version [587KB]
Liz Wakerly
Economics Section
17
October 2017
Contents
Purpose of the Bill
Structure of the Bill
Structure of this Bills Digest
Committee consideration
Senate Standing Committee for the
Selection of Bills
Senate Standing Committee for the
Scrutiny of Bills
Statement of Compatibility with Human
Rights
Parliamentary Joint Committee on
Human Rights
Schedule 1 - GST measure
Inquiry by the Senate Economic
References Committee
Inquiry by the Productivity
Commission
Government response
International experience
Policy position of non-government
parties/independents
Position of major interest groups
Financial implications
Key provisions
Other provisions
Application and transitional
provisions
Schedule 2 - Centre
for Entrepreneurial Research and Innovation
Policy position of non-government
parties/independents
Financial implications
Key provisions
Date introduced: 14
September 2017
House: House of
Representatives
Portfolio: Treasury
Commencement: Sections
1 to 3 on Royal Assent; Schedule 1, 1 July 2017; Schedule 2, the first 1
January, 1 April, 1 July or 1 October after the day the Act receives
Royal Assent.
Links: The links to the Bill,
its Explanatory Memorandum and second reading speech can be found on the
Bill’s home page, or through the Australian
Parliament website.
When Bills have been passed and have received Royal Assent,
they become Acts, which can be found at the Federal Register of Legislation
website.
All hyperlinks in this Bills Digest are correct as
at October 2017.
Purpose of
the Bill
The purpose of Schedule 1 to the Treasury Laws Amendment
(2017 Measures No. 6) Bill 2017 (the Bill) is to amend the A New Tax System
(Goods and Services Tax) Act 1999 (the GST Act) to ensure that
supplies of digital currency receive equivalent goods and services tax (GST)
treatment to supplies of money, particularly foreign currency.
The purpose of Schedule 2 to the Bill is to amend the Income Tax
Assessment Act 1997 (ITAA 1997) to include the Centre for
Entrepreneurial Research and Innovation (CERI) on the list of deductible gift
recipients (DGRs).
Structure
of the Bill
The Bill is comprised of two Schedules:
- Schedule
1 to the Bill amends the GST Act to ensure that supplies of digital
currency receive equivalent GST treatment to supplies of money, particularly
foreign currency and
- Schedule
2 to the Bill amends the ITAA 1997 to include the CERI as a DGR.
Structure of this Bills Digest
As the matters covered by each of the Schedules are
independent of each other the relevant background, stakeholder comments (where
available) and analysis of the provisions are set out under each Schedule
number.
Committee
consideration
Senate
Standing Committee for the Selection of Bills
At its meeting of 14 September 2017, the Senate Standing
Committee for the Selection of Bills deferred consideration of the Bill to its
next meeting.[1]
Senate
Standing Committee for the Scrutiny of Bills
At the time of writing, the Bill had not been considered by
the Senate Standing Committee for the Scrutiny of Bills.
Statement
of Compatibility with Human Rights
As required under Part 3 of the Human Rights
(Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed
the Bill’s compatibility with the human rights and freedoms recognised or
declared in the international instruments listed in section 3 of that Act. The
Government considers that the Bill is compatible.[2]
Parliamentary
Joint Committee on Human Rights
At the time of writing, the Bill had not been considered by
the Parliamentary Joint Committee on Human Rights.
Schedule 1—GST
measure
GST is payable on taxable supplies.[3]
Supplies of money do not constitute a supply unless the money is provided as
consideration for a supply that is a supply of money.[4]
At its simplest, this might be an exchange of Australian dollars for an
equivalent amount in a foreign currency.
Whether digital currency such as bitcoin is or may involve
money is relevant for determining whether the transfer of bitcoin
from one entity to another is a supply for GST purposes. According to the
Oxford Dictionary of English, bitcoin is:
... a type of digital currency in which encryption techniques
are used to regulate the generation of units of currency and verify the
transfer of funds, operating independently of a central bank.[5]
In Goods
and Services Tax Ruling GSTR 2014/3, the Commissioner of Taxation (the
Commissioner) advised that digital currencies such as bitcoin are not money
for the purposes of the GST Act. However,
5. A transfer of bitcoin from one entity to another is a ‘supply’
for GST purposes.[6]
And further:
The value of a taxable supply is calculated by
reference to the price which is made up of consideration which is expressed as
an amount of money and the GST inclusive value of any
non-monetary consideration. Further, the value of that taxable supply
must be expressed in Australian currency or translated into Australian currency
if the consideration is expressed in a foreign currency. Having regard to these
provisions, money is a central concept in determining whether
there is a supply for GST purposes, and the calculation of the GST payable on a
taxable supply.[7]
Inquiries by the Senate Economics References Committee and
the Productivity Commission in 2015 identified this treatment of digital
currency as a deterrent to the use of digital currency in Australia, and
recommended changes to the law so that it would be treated, for GST purposes,
in a way that is more consistent with the treatment of money.
Inquiry by
the Senate Economic References Committee
The Senate Economics References Committee (Economics
Committee) published a report on its Inquiry into Digital Currency, Digital Currency—Game Changer or Bit Player, in August 2015.[8]
Under the terms of reference, the Economics Committee was to give particular
attention to, among other things:
(a) how to develop an effective regulatory system for digital
currency that:
(i) ascertains the most appropriate definition of
digital currencies under Australian tax law.[9]
The key concern expressed in submissions to the Economics
Committee by the Bitcoin Foundation and Bitcoin Association of Australia was
the GST treatment of bitcoin.[10]
By treating bitcoin transactions as barter transactions, GST can effectively be
applied twice to one transaction: GST would be applied to the goods or services
being provided and to the ‘supply’ of digital currency used as payment.[11]
Professor Miranda Stewart and Mr Joel Emery from the Tax and Transfer Policy
Institute, Australian National University, suggested that an exemption to the
application of a sales tax (GST) in Australia (as is the case with VAT in the
UK), ‘would promote simplicity and neutrality, as it treats sales using digital
currency as payment largely the same as sales using traditional cash’.[12]
Recommendation 1 of the report concludes:
4.35 The committee is of the view that digital currency
should be treated as money for the purposes of the goods and services tax. As
such, the committee recommends that the government consults with the states and
territories to consider amending the definition of money in the A New Tax
System (Goods and Services Tax) Act 1999 and including digital
currency in the definition of financial supply in A New Tax System (Goods
and Services Tax) Regulations 1999.[13]
Inquiry by
the Productivity Commission
Recognising that the requirement to charge GST on digital
currency transactions may be a barrier to setting up a digital currency
business in Australia, a Productivity Commission Business Set-up, Transfer and
Closure report (published September 2015) recommended that:
Digital currencies, such as Bitcoin, should be treated as a
financial supply for GST purposes. This would require that the definition of
money be updated to include digital currency in both Division 195 of the A
New Tax System (Goods and Services Tax) Act 1999 (Cth) and relevant GST
Regulations.[14]
The report noted that ‘reducing impediments to digital
currency businesses in Australia could facilitate innovation, not only in
payment systems, but also a range of other industries’.[15]
In addition, the current classification of digital currencies as intangible
property for GST purposes places Australian-based businesses at a disadvantage
to overseas competitors where sales tax is not charged on the supply of digital
currency. In contrast to the supply of digital currency, the supply of foreign
currency in Australia is a ‘financial supply’ and as such GST is not applied to
the exchange.
Government
response
In the Government’s Backing
Australian FinTech statement of March 2016, it ‘committed to addressing
the “double taxation” of digital currencies’ and to working with industry on
legislative options to reform the GST law.[16]
The Government’s response to the Senate inquiry (published
in May 2016) agreed that consumers should not be subject to GST twice when
using digital currency to purchase goods and services.[17]
Consistent with these responses, on 9 May 2017, the
Government announced that, from 1 July 2017, it would align the GST treatment
of digital currency (such as bitcoin) with money:
Digital currency is currently treated as intangible property
for GST purposes. Consequently, consumers who use digital currencies as payment
can effectively bear GST twice: once on the purchase of the digital currency
and again on its use in exchange for other goods and services subject to GST.[18]
International
experience
In 2015, the European Court of Justice ruled
that Bitcoin transactions ‘are exempt from VAT (value-added tax) under the
provision concerning transactions relating to currency, bank notes and coins
used as legal tender’.[19]
In Japan, Bitcoin is officially
recognized as a payment method, with the sale of Bitcoin exempted from
consumption tax as of 1 July 2017.[20]
In the United States, however, the
Internal Revenue Service (IRS) issued a notice in 2014 providing
that ‘virtual currency is treated as property for U.S. federal tax purposes’
and is therefore subject to capital gains tax.[21]
Policy
position of non-government parties/independents
At the time of writing, non-government parties and
independents have not commented publicly, other than as members of the Senate
Economics References Committee Inquiry into Digital Currency.
Position of
major interest groups
There were 48 submissions to the Senate Inquiry into
Digital Currency. Some of these have been referred to above. Where reference
was made to the GST treatment of bitcoin, there appeared to be a consensus. In
their submission, the Institute of Public Affairs (IPA):
... share[d] the concerns expressed by some Bitcoin exchange
vendors that the ATO’s requirement that GST be imposed upon Bitcoin
transactions could stifle the development of this technology.[22]
CoinJar, an Australian digital finance startup argued that
the requirement for bitcoin gateway companies to charge customers GST had
rendered them uncompetitive against non-Australian rivals.[23]
Following the Australian Taxation Office (ATO) ruling in 2014, CoinJar
relocated to the United Kingdom.[24]
The submission by the Bitcoin Foundation and the Bitcoin
Association of Australia noted that the current GST treatment:
... is already hindering bitcoin adoption and innovative
start-ups in Australia, and has the potential to severely hinder the growth of
the nascent FinTech space in Australia. ... The GST treatment of bitcoin is the
main issue.[25]
The Australian Digital Currency Commerce Association
argued for a new definition of digital currency to be incorporated into the GST
Act and for the definition of money to be expanded to include digital
currency:
Treating Digital Currency as a commodity or other good
subject to value-added tax would impose tax on every transaction completed
using Digital Currency and therefore guarantee its rapid demise.[26]
Citing additional administrative costs and the ‘potential
for anomalous tax outcomes’, The Tax Institute argued that bitcoin should be
treated as currency for tax purposes.[27]
The Australian Securities and Investment Commission did
not, however, consider that digital currencies are money or currency for the
purposes of the Corporations
Act 2001 or the Australian
Securities and Investments Commission Act 2001.[28]
Financial
implications
According to the Explanatory Memorandum, the amendments to
the GST Act are ‘estimated to have an unquantifiable impact on GST
revenue over the forward estimates period’.[29]
In an analysis of bitcoin users, one submission to the
Senate Inquiry notes that a minority of users (both in number and bitcoin
balances) appear to use bitcoin as a medium of exchange; most bitcoins are held
by investors.[30]
The Reserve Bank of Australia notes that, although the
volume of bitcoin transactions has grown over the past years, transaction
levels remain small relative to existing retail payment systems. In 2014, for
example, average daily bitcoin transactions were less than 0.02 per cent of
global purchases made by credit, debit or prepaid cards.[31]
Key
provisions
Schedule 1 to the Bill amends the GST Act to ensure
that supplies of digital currency receive equivalent GST treatment to supplies
of money, particularly foreign currency.
Item 1 of Schedule 1 to the Bill amends the
definition of supply to make it clear that a supply does not
include a supply of digital currency unless the digital currency is provided as
consideration for a supply that is a supply of digital currency or money.[32]
Item 2 of Schedule 1 to the Bill allows the
Commissioner to determine methods for converting digital currency into
Australian currency when valuing supplies, consistent with the Commissioner’s
existing powers in relation to foreign currency.[33]
Item 27 amends section 195-1 of the GST
Act to include a definition of digital currency being digital
units of value that:
- are
designed to be fungible
- can
be provided as consideration for a supply
- are
generally available to members of the public without any substantial
restrictions on their use as consideration
- are
not denominated in any country’s currency
- do
not have a value that depends on, or is derived from, the value of anything
else and
- do
not give an entitlement to receive, or to direct the supply of, a particular
thing or things, unless the entitlement is incidental to holding the digital
units of value or using the digital units of value as consideration.
Digital currency does not include money or a
thing that, if supplied, would be a financial supply for a reason other than
being a supply of one or more digital units of value as described above.
If something meets the definition of digital
currency, the amendments in Schedule 1 ensure that payments made using
that digital currency receive equivalent treatment to payments made using
money: items 1 and 4 provide that supplies or acquisitions of
money or digital currency are generally not supplies or acquisitions under GST
law, unless the supply of money or digital currency is in exchange for other
money or digital currency.
Minor amendments to other provisions that make reference
to money or currency, to include digital currency, are contained in items 2,
5–26 and 28–29. Item 3 is an applications provision that preserves
the validity of existing determinations made by the Commissioner in relation to
foreign currency.
Schedule 1 amends provisions referring to payments in
money, including in the provisions dealing with insurance (items 5–11),
third party payments (items 12–16 and 21–24), settlement
sharing arrangements (items 17–18), gambling (items 19–20 and 28–29)
and GST turnover (items 25–26). The amendments revise these provisions
to also apply to digital currency where this is required to provide consistent
treatment.
Other provisions
Application
and transitional provisions
The amendments made by Schedule 1 apply to supplies and
payments made on or after 1 July 2017 (item 30). As the date of effect
was announced in the 2017–18
Budget, the ‘potential retrospective application is not expected to have
any substantive adverse impact on taxpayers’.[34]
It is also intended that this start date will apply for
the related amendments the Government intends to make to the GST Regulations (subitem
30(2)). Specifically, subsection 12(2) of the Legislation Act
2003 (retrospective application of legislative instruments) does not
apply to amendments to regulations dealing with the GST treatment of financial
supplies if these amendments relate to digital currency and are made within six
months of the Schedule receiving Royal Assent.[35]
Schedule 2—Centre for Entrepreneurial Research and Innovation
CERI is a registered charity, an
independent, not-for-profit organization based in Western Australia.
Established in 2015, its purpose is to work with local researchers and assist
them in developing entrepreneurial skills and commercializing innovative ideas.
Our mission is to work with our knowledge workers in entrepreneurship,
innovation and startup company formation to drive a strong commercial ecosystem
in WA.[36]
According to the Explanatory Memorandum
to the Bill, CERI’s activities include:
- encouraging
cross-collaboration between researchers in universities, research institutes
and the private sector;
- working
with researchers to assist in proof of concept and commercialisation; and
- assisting start-up companies by providing access to
investors, as well as facilities at the CERI’s offices.[37]
Division 30 of the ITAA 1997 sets out the rules for working out
deductions for certain gifts or contributions. The income tax law allows income
tax deductions for taxpayers who make gifts of $2 or more to a deductible gift
recipient (DGR). DGRs are defined in section 30-227 of the ITAA 1997.
An organisation must be registered with the Australian
Charities and Not-for-profits Commission (ACNC) to apply for charity tax
concessions. Many charities are also eligible to apply for DGR status, which
means that donations made to the organisation are tax deductible.[38]
DGR status helps eligible organisations attract public financial support for
their activities. In order to be endorsed as a DGR, an
organization must be established and operated in Australia.[39]
Policy
position of non-government parties/independents
At the time of writing, non-government parties and
independents have not commented publicly on the measures contained in Schedule
2 of the Bill.
Financial
implications
According to the Explanatory Memorandum
to the Bill, the measure in Schedule 2 is estimated to have a minimal financial
impact over the forward estimates period.[40]
Key
provisions
Schedule 2 to the Bill amends the ITAA 1997 to
include the CERI as a DGR.
Item 1 amends the table in subsection 30-40(2) of
the ITAA 1997 to insert the CERI: taxpayers can claim a tax deduction
for gifts made to the CERI provided the gift complies with the existing
requirements of the income tax law. The listing of the CERI applies to gifts
made after 1 January 2017 and before 31 December 2021.
Item 2 amends the index for Division 30 of the ITAA
1997 to reflect the listing of the CERI.
[1]. Senate
Standing Committee for the Selection of Bills, Report,
11, 2017, The Senate, Canberra, 14 September 2017.
[2]. The
Statement of Compatibility with Human Rights can be found at pages 18 and 21 of
the Explanatory
Memorandum to the Bill.
[3]. GST
Act, Part 2–2, Division 9.
[4]. GST
Act, Part 2–2, subsection 9–10(4). The definition of money, as set out in
section 195-1 of the GST Act, includes: currency; promissory notes and
bills of exchange; negotiable instruments used, circulated or intended for use
or circulation as currency; postal notes and money orders; payments by way of
credit or debit cards, crediting or debiting an account or the creation or
transfer of a debt. The definition also provides that money does not include:
collector’s pieces; investment articles; items of numismatic interest; or
currency the market value of which exceeds its stated value as legal tender in
the country of issue.
[5]. Oxford
dictionary of English, Bitcoin, Oxford
dictionary online.
[6]. Australian
Taxation Office (ATO), Goods
and services tax: the GST implications of transactions involving bitcoin,
Goods and Services Tax Ruling, GSTR 2014/3, ATO, Canberra, 21 January 2015.
[7]. Ibid.,
p. 7.
[8]. Details
of the terms of reference, submissions to the Economics Committee and the
Committee’s final report are available on the inquiry
homepage.
[9]. Senate Economics References
Committee, Digital
currency: game changer or bit player, The Senate, Canberra, August
2015, p. 1.
[10]. Bitcoin
Foundation and Bitcoin Association of Australia, Submission
to the Economics References Committee, Inquiry into digital currency, 28
November 2014.
[11]. Senate
Economics References Committee, Digital
currency: game changer or bit player, op. cit., p. 28.
[12]. M
Stewart and J Emery (Tax and Transfer Policy Institute) Submission
to the Economics References Committee, Inquiry into digital currency, 28
November 2014, p. 13.
[13]. Senate
Economics References Committee, Digital
currency: game changer or bit player, op. cit., p. 34.
[14]. Productivity
Commission (PC), Business set-up,
transfer and closure, Inquiry report, 75, PC, Canberra, 30 September
2015, Recommendation 9.4 at p. 32.
[15]. Ibid.,
p. 241.
[16]. Australian
Government, Backing
Australian FinTech, Treasury, Canberra, March 2016, p. 22
[17]. K
O’Dwyer (Minister for Small Business and Assistant Treasurer), Government
response to Senate inquiry into digital currency, media release, 5 May
2016.
[18]. Australian
Government, Budget
measures: budget paper no. 2, 2017–18, p. 22.
[19]. Court
of Justice of the European Union, The
exchange of traditional currencies for units of the ‘bitcoin’ virtual currency
is exempt from VAT, 128/15, media release, Luxembourg, 22 October 2015.
[20]. On
March 27, the Japanese National Diet passed the 2017 tax reform bills which
include amendments to the Fund Settlement Law to define virtual currency as a
means of settlement. See Deloitte, ‘Japan:
2017 tax reform proposals’, Inbound Tax Alert, 19, December 2016.
[21]. Internal
Revenue Service (IRS), Notice
2014–21, IRS, Washington, DC., 25 March 2014.
[22]. Institute
of Public Affairs, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
November 2014, p. 6.
[23]. CoinJar,
Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
28 November 2014.
[24]. PC,
Business set-up, transfer and closure,
op. cit., p. 246.
[25]. Bitcoin
Foundation and the Bitcoin Association of Australia, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
28 November 2014, pp. 18–19.
[26]. Australian
Digital Currency Commerce Association, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
2014, p. 10.
[27]. The
Tax Institute, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
1 December 2014, p. 1.
[28]. Australian
Securities and Investments Commission, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
December 2014.
[29]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 6) Bill 2017, p. 3.
[30]. Finance
Discipline Group, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
2014.
[31]. Reserve
Bank of Australia, Submission
to the Senate Standing Committee on Economics, Inquiry into digital currency,
November 2014.
[32]. GST
Act, proposed subsection 9–10(4).
[33]. GST
Act, proposed subsection 9–85(2).
[34]. Australian
Government, Budget
measures: budget paper no. 2: 2017–18, p. 22; and Explanatory
Memorandum, op. cit., p. 17.
[35]. Subsection
12(2) of the Legislation Act 2003 prevents the provision of a
legislative instrument from having retrospective effect in relation to a person
if it would disadvantage the person or subject them to a liability.
[36]. Centre
for Entrepreneurial Research and Innovation (CERI), ‘Vision and mission’,
CERI website.
[37]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 6) Bill 2017, p. 19.
[38]. Australian
Charities and Not-for-profits Commission (ACNC), ‘Charity
tax concessions available’, ACNC website.
[39]. ATO,
‘Rules
and tests for DGR endorsement’, ATO website, last modified 10 October 2017.
[40]. Explanatory
Memorandum, Treasury Laws Amendment (2017 Measures No. 6) Bill 2017, p. 4.
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