We ran a Court case against the ATO and the results were interesting. Here is a video and below is the transcript of the discussion:
Transcript of video:
Did you run a tax case against the ATO on bitcoin?
OK. Now that we have your credentials sorted out, do I have to pay tax on my bitcoin?
Yes and no. The case presented some interesting dilemmas that principally arise from the tax law lagging behind technology.
I did not understand that at all, please speak English.
Basically, the case was around whether all the foreign currency rules, which are complicated and are designed to close all sorts of loopholes in financial transactions apply to bitcoin, and the Court confirmed that those rules don’t apply. Its because the Court doesn’t consider bitcoin to be a currency, which means all the currency rules don’t apply.
That sounds like a good answer but I have still learned nothing from this video other than you ran the bitcoin tax case against the ATO.
OK so let’s take an example. The Government closed a loophole around the year 2000 for people who deal exclusively in foreign currency who would generally make a gain or loss but because of the way they did their dealings the gain or loss is invisible. The Court’s conclusion was that this loophole is back for bitcoin.
That sounds too good to be true
The Court was probably wrong on this. I personally think the foreign currency rules should apply. But I don’t get to decide that. I think the reason they came to this view is because they did not consider bitcoin a legitimate currency, and so treating it like a currency makes no sense. So back to my first answer which you ridiculed, its just the gap between technology and what is happening on the ground and where the law is up to, which is always a few steps behind.
Any other examples of this?
Well, the Taxation of Financial Arrangement Rules which were to tax financial transactions during the boom kicked in just in time for the GFC, so too late. The Government also introduced the mining tax which kicked in just in time for the end of the mining boom. So yes, this happens all the time.
OK so what do I do now
I wouldn’t do anything risky. Just follow the law. I think if you are dealing in bitcoin in a way that falls outside the tax net then you should apply for a private ruling and rely on the bitcoin court case decision and see how you go. Sometimes the ATO changes its interpretation of the rules based on the outcome. Actually, it happens more than sometimes.
Can you help me with this?
Yes – our details are on the next slide if you want to get in touch.