Bitcoin was created in 2009 by Satoshi Nakamoto as the world’s first cryptocurrency and is the biggest. Currently there are 669 cryptocurrencies in the world with the top 10 being: Bitcoin, Blackcoin, Dash, Dogecoin, Litecoin, Namecoin, Nxt, Peercoin, Primecoin and Ripple.
Bitcoins are a digital currency so can be used to buy things electronically (and in that sense are similar to conventional currency). However Bitcoins most important characteristic is that it is decentralised so no single institution controls the Bitcoin network.
Bitcoins are not printed like dollars or euros – they are produced by people, and increasingly by businesses, running computers all around the world, using software that solves mathematical problems. This process is known as Bitcoin mining and further details are available at www.bitcoinmining.com.
The tax consequences of using Bitcoin are as follows:
• The ATO’s view is that Bitcoin is not money or a foreign currency, and the supply of bitcoin is not a financial supply for goods and services tax (GST) purposes. Bitcoin is however, an asset for capital gains tax (CGT) purposes.
• Transacting with Bitcoins is akin to a barter arrangement, with similar tax consequences. When receiving Bitcoin for the sale of goods or services, a business may be charged GST on that Bitcoin.
• Where Bitcoin is used to purchase goods or services for private use, then any capital gain or loss from the Bitcoin will be disregarded (provided the cost of the Bitcoin is less than $10,000).