If you are a Small to Medium Business owner, don’t make the mistake of thinking that Cryptocurrency, Bitcoin and Blockchain don’t have a presence in your world. On the contrary given some recent developments by the ATO, you may want to revise your current thinking and take another look.
Before we delve further, a quick refresher below:
- Bitcoin – the first cryptocurrency. It’s a form of electronic cash as a decentralized digital currency without a central bank or single administrator, sent from user to user on a peer-to-peer network without the need for intermediaries.
- Blockchain - is the technology behind bitcoin and other cryptocurrencies. It delivers a decentralized ledger of all transactions across a peer-to-peer network. Using this technology, participants can confirm transactions without a need for a central clearing authority. Each of these blocks of data (i.e. block) are secured and bound to each other using cryptographic principles (i.e. chain).
- Cryptocurrency - other digital currencies created, similar to Bitcoin that depend on a peer to peer network with a consensus keeping process that are built on cryptography, basically built on code. These are not secured by people or by trust but by maths. Features of a cryptocurrency transactions are that they are irreversible, pseudonymous, fast and global, secure and permissionless. Some other monetary features are that cryptocurrency has a controlled supply and that they are not debt (unlike fiat) but bearer, simply like holding coins of gold. Some popular cryptocurrencies other than Bitcoin are Ethereum, Ripple, Litecoin, Dash, Nem, and Monero to name a few. For further reading we found this article useful.
Most people will have heard of Bitcoin as an Investment, and despite its varying value from the all-time high of $20,000 to its lowest a few months ago, trade volume is trending upwards. Importantly, Bitcoin is not alone given there are several others in use with the push to regulate cryptocurrency in many countries gaining momentum.
So, what’s the significance for business? Cryptocurrency is increasing its footprint as an acceptable means of payment.
In recognising this, the ATO recently released a new GST determination outlining the treatment – “Goods and Services Tax: Digital Currency Conversion Determination 2019”
Essentially, payments accepted in cryptocurrency need to be converted to Australian Dollars on the day of the transaction with GST treated similarly.
Further guidelines detail the use of cryptocurrency in business either as a business that trades cryptocurrency much like a share trader, or a business that accepts cryptocurrency transaction or a business that pays staff in cryptocurrency. The ATO views cryptocurrency transactions much like barter transactions and points to a tax ruling on the tax treatment of barter transactions. Click here to read ruling.
What’s the opportunity for my business?
ATO’s increasing attention tells us that cryptocurrency is on the rise and given its disruptive nature, will influence how some industries will transact in the future.
The need for businesses that can accept cryptocurrency is growing equally with the number of cryptocurrency holders ready to transact globally. Dependent on your industry, you could potentially source new opportunities by having the ability to accept crypto. Click here for a great summary by Forbes outlining the pros and cons.
There are numerous ways to do business via cryptocurrency however there are also businesses that assist with Merchant services set up to enable functionality. Some of these include Coinjar, Travelbybit and Coinbase.
This continues to be an evolving area however with activity continuing, it’s something worth exploring further. We have developed in-house expertise to assist with the accounting for cryptocurrency covering both business transactions or those as a trader or investor.
Contact Karen Ng on 1300 795 515 or kng@prosperity.com.au if you’re interested to find out what this could mean for your business.