WHAT HAPPENS IN OTHER COUNTRIES?

WHEN predicting how the South African Revenue Service may tax Bitcoin transfers, it is useful to consider the practice in other countries.

United States. The Internal Revenue Service (IRS) defines virtual currency as a “digital representation of value that functions as a medium of exchange, a unit of account or a store of value”. For federal tax purposes, virtual currencies such as Bitcoin are treated as property, thus existing tax principles apply to virtual currency transactions. The IRS treats any disposal of property as a capital gain or capital loss.

The IRS requires taxpayers who “mine” Bitcoin to include the fair market value of the Bitcoin as gross income in their taxable income.

Australia. The Australian Taxation Office (ATO) considers Bitcoin transactions as akin to barter transactions and is of the view that Bitcoin is neither money nor foreign currency.

The supply of Bitcoins is not a financial supply for the purposes of goods and services tax.

The ATO, however, considers Bitcoin as an asset for capital gains tax purposes. Doing business with Bitcoin is treated differently by the ATO. If a business receives Bitcoin for goods or services, the business has to record the value in Australian dollars as ordinary income. Canada. The Canadian Revenue Agency (CRA) provides that where digital currency is used to pay for goods or services, the rules for barter transactions apply. Therefore when a taxpayer receives Bitcoin as payment, the revenue earned is deemed to be what the taxpayer would have ordinarily charged for the good or the service, and ordinary income tax principles apply.

The CRA also provides that digital currency can be traded like a commodity.

The tax consequences of the realisation of gains or losses from trading of Bitcoins will depend on whether the transaction is considered to be of a capital or an income nature.

Source: Allen & Overy