We recently ran a Court case against the ATO regarding the tax treatment of bitcoin in the AAT.
Sometimes Court cases look like they are about one topic, when they are actually exploring deeper and more significant issues that have far reaching consequences.
The Bitcoin case was one of those – and the results are in.
The heart of the question was how will the Court respond to new technology? Does it get updated automatically or does it create a new tax loophole until the Government brings in new laws?
Imagine if the law said you can’t send people spam by email. What if you create a software program that does it automatically? Does that mean you did it, or the computer did it?
The ATO recently set up automated systems to send out letters. The letters told people what their debts were. In one letter, it said someone would have a lower debt if they paid the debt off now, so the person did that. The ATO later said it wasn’t bound by it because the ATO did not send the letter- rather, the computer did. The Court agreed. Loop hole created.
The Bitcoin case was the same. The Government tried to close a loophole when foreign currency was used in certain transactions which resulted in no tax being paid when it should have been. The question was whether the loophole would be closed for bitcoin too if it were used as a currency in the same transaction. The Court said that the loophole is closed for foreign currency, but it is still open if you choose to use bitcoin for the same transaction, saying:
“But that is a question for law reform that will be answered by others on another day. For now, I must apply the law as it is, even if some might say it is imperfectly expressed.”
The result was this – the law will not necessarily automatically be updated to reflect technological development. There is a clear pattern here insofar as technological improvements and developments are concerned. The Courts will simply say its Parliament’s problem and until they do something about it, the loop hole stays open. Presumably this rule applies to all cryptocurrencies, not just Bitcoin. Did the Court just green light & bring back a new (old) tax loophole?