CRYPTOCURRENCY IN BUSINESS
from Thomson Reuters
Classifying Crypto
The ATO does not regard cryptocurrecy as “money” or “foreign currency” for taxation purposes. Instead it is generally treated as a form of property – a digital asset. This distinction is crucial as unlike traditional currency , crypto assets may attract CGT, income tax and have GST implications depending on their use. The context and purpose behind acquiring or disposing of crypto assets will determine the applicable tax treatment.
Crypto in business – Capital vs Revenue Account
Crypto assets acquired for investment purposes are generally treated as capital assets. The cost base – whether determined by the price paid, market value at acquisition, or other means depends on how the crypto was obtained (eg Gift, fiat to crypto exchange or sale exchange) This can have effect on CGT calculations.
Where businesses engage in crypto trading, mining, operating exchanges, selling NFTs or using crypto for transactions, these activities are typically on revenue account. As such these crypto assets are treated as trading stock, with gains treated as ordinary income and losses deductible. Year end inventory valuation choices and inventory adjustments are required where the trading stock provisions apply.
Companies with aggregate turnover under $50 million and base rate passive income (BREPI) of 80% or less may qualify for a reduced tax rate of 25%. However correctly classifying crypto income – such as net capital gains, interest or gains on qualifying securities may impact the BREPI calculations as these three categories are passive income under the BREPI rules.
An emerging issue for companies is the lending of crypto to shareholder’s wallet/accounts to enable them to receive airdrops. While this may appear to be commercially benign , such arrangements can trigger Division 7A issues.
GST in the Crypto era.
Entities carrying on an enterprise (not necessarily a business) who are registered or required to be registered for GST are required to remit GST on taxable supplies. Receiving crypto as payment satisfies the consideration requirement under Section 9-5(1)(a) of the GST Act.Thus businesses transacting in crypto for goods and services are making a supply for consideration and are ordinarily required to remit GST.
When it comes to creditable acquisitions paid for with crypto , input tax credits may be claimed. Importantly, the acquisition or disposal of crypto itself is a financial supply and is input taxed – meaning there is no GST liability on the supply of crypto and no credits to be claimed on the purchases and related costs. However, GST credits may be available in full if the financial acquisitions threshold (FAT) is not exceeded. If the FAT is exceeded, reduced input credits may be available where otherwise no credits are available.
