Business, cryptocurrency, blockchain and the Australian tax system

Just when you thought the Australian tax system couldn’t get any simpler the cryptocurrency revolution arrives to really stir things up – we’ve broken it down for business operators

Merchants

To the businesses already accepting, or about to accept, cryptocurrency, congratulations on being early adopters. There are typically two outcomes when a business accepts cryptocurrency for payment of invoices:

  • Immediately converts to AUD

    If you’re a business who has partnered with a cryptocurrency payment processor, then you may have chosen to allow customers to pay your bills in cryptocurrency but have AUD deposited to your bank account. The payment processor is immediately converting the cryptocurrency to AUD for you. This is the far simpler approach for Australian tax purposes as it pretty much means business as usual – book the AUD bank deposit as income, pay tax and GST where applicable.

  • Keep the crypto

    Some businesses choose to keep the cryptocurrency from the sale, rather than immediately convert to AUD. As a result, the cryptocurrency held by the business typically becomes trading stock with tax implications arising on later disposal by recognizing profits or losses. This makes the situation a little more complex and you really must keep good records.

Start-ups

Innovative businesses and entrepreneurs are utilizing blockchain technology and cryptocurrencies to revolutionise the way the world works. Poorly structured businesses can be in for a world of pain if they don’t appropriately consult tax specialists. We don’t want to see a successful business fall over because of unnecessary tax burdens which were preventable, and so we strongly recommend seeking advice early in the business establishment phase to avoid problems down the road.

  • Initial Coin Offering

    If your business wants to raise funds through an Initial Coin Offering (“ICO”) then be aware technical execution is just one piece of the puzzle. There is a plethora of tax consequences to review and consider with respect to income tax, GST and fringe benefits tax. How your ICO is taxed will depend on a variety of factors and notably whether you are offering a utility token or a security token.

  • Tax Concessions & Incentives

    The Australian tax system includes a multitude of tax concessions for businesses, particularly those which are innovative. Some of these even include the government giving you money (that’s a nice change). Other concessions help reduce tax as you operate and there are some which can help you save thousands, if not millions, when it comes time to sell the business. What’s really important to realise is that almost all will require you to have a certain structure in place from the beginning, so you better seek specialist tax advice early.

Investment Funds

The cryptocurrency and ICO hype of 2017 that caught the eye of the mainstream birthed a wave of interest in investing into the space and now we have investment funds setting up to help investors gain exposure to this exciting asset class.

  • Private Funds

    When a group of friends and family pool their cryptocurrency together the tax implications can get messy, really quickly! To avoid unnecessary pain and potentially reduce tax liabilities, you should be seeking specialist tax advice to formalize the tax structure.

  • Sophisticated / Wholesale Funds

    Managing people’s wealth through a cryptocurrency investment fund will most likely require financial licensing and constitute a managed investment scheme for which you should seek legal advice. Many investment funds marketed to the public only accept sophisticated investors due to regulator requirements. Tax implications for such funds depend on the structure and investing activities.

  • Retail Funds

    Marketing an investment fund to the public will likely require the operator to meet financial licensing requirements per regulations, and you should seek legal advice before commencing a retail investment fund. It is imperative that an investment fund is appropriately structured at the beginning to help reduce tax complications down the road.

Exchange Services

There are various ways by which businesses operate an exchange service converting AUD to cryptocurrency and/or vice versa; and also crypto to crypto exchanges. This includes people on Localbitcoins.com, operators of cryptocurrency ATMs and services where you accept cryptocurrency and pay your customer’s bill via BPAY and the like.

There are income tax and GST considerations for these businesses, which depend on the finer details of how the exchange works. Do you take possession of the cryptocurrency or simply connect a buyer with a seller? How are you paid for the service?

Digital Currency Exchanges are generally also caught by Australia’s Anti-Money Laundering and Counter-Terrorism Funding laws and should seek legal advice. For your tax advisory needs, we recommend getting everything in order before commencement, it’ll likely reduce the hassle of tax compliance and save tax.

Employment & Contractor Issues

There is quite a lot to look at when it comes to working out the tax implications for businesses paying their employees and/or contractors with cryptocurrency. First you need to work out whether you are paying an employee or a contractor. Then are they in Australia or overseas?

A key piece of advice for every Australian business, whether or not they are into cryptocurrency or blockchain, is to speak with a tax specialist at the beginning and ongoing.

Tax planning is your greatest weapon against the tax man as it helps your accountant arrange your affairs in the most tax effective manner, possibly saving you many thousands, if not millions of dollars.

Have no regrets, give us a call today.