Just as with all income and capital taxation issues, Bitcoin-based transactions require that suitable record-keeping practices are adhered to.
Bitcoin transactions are public, and a permanent copy of the transaction is reported in the blockchain and can be viewed publically. The addresses associated with these transactions should be recorded; this would be in a format that could include:
• Payer Bitcoin address
• Payer TFN, ABN, or other identifying information
• Payee Bitcoin address
• Payee TFN, ABN, or other identifying information
• Bitcoin transaction ID
An example transaction is linked below:
The transaction ID is:
This is a unique number that records the particular transaction into the journal (the blockchain).
In this example, the Bitcoin address
has transacted in 29.9999 bitcoins at a market rate of $2,049.00 at the time the transaction was completed. These bitcoins have been transferred to the following address:
(at $ 2,049.00).
We propose that a business records the address it is sending and receiving from/to and also records the transaction ID. This could be used as a record of the transaction. Coupled with the market rate for bitcoin in $AUD, the business could submit a tax invoice based on the transaction.
This is an example of a real Bitcoin transaction. In this case, the transaction is public, but the payer and payee are not disclosed publically. In this example, the recording of the sender and payer addresses would allow tracking of the transactions against a tax invoice.
The records kept might include the same information that appears on a stock or forex brokerage statement: “date of trade, description of trade, qty & price, and fees.”
Depending on how the revenue is to be treated, you may need to know when the bitcoin proceeds were attained. The information of all expenses associated with mining needs to be recorded. This would be in concord with normal business accounting practices and record keeping.
Regardless of how revenue is recognized for goods and services whose payment is made using bitcoins, the record-keeping requirements are likely to be the same:
- Reference to sales (e.g. cust # / invoice #),
- amount received (in bitcoins), and
If GST is payable, then for that purpose documentation might include a calculated on a weighted average based exchange rate that existed at the time of sale.
Employers sending bitcoins as compensation could record all calculations in the functional currency (e.g., AUDs), and then after all withholding amounts are subtracted the net amount of the check is paid out in bitcoins based on the market exchange rate at the time. The exchange rate value could be recorded with the transaction ID and proof of payment.
It is submitted that bitcoin is “money” within the ordinary meaning, and should be treated as money for tax purposes. This paper presents the factual and legal support for this treatment.
Treating bitcoin as money for tax purposes will provide not only certainty to taxpayers, but also simpler and clearer application of tax laws. Such treatment would also result in consistent tax treatment of real-world transactions irrespective of the form of money or currency used, and hence consistent treatment across taxpayers.
The resolution of governments’ tax treatment of Bitcoin is vital to the growth of the Bitcoin industry in their borders, and the opportunity it presents to their economy.