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GST and Digital Crypto Currency as Payment
In today's digital age, the use of digital crypto currency has gained significant traction. As businesses adapt to changing payment trends, it's important to understand how goods and services tax (GST) applies when receiving and using digital currency as payment.
Digital Crypto Currency as Payment for Goods and Services:
When digital currency is used to pay for goods and services in a GST-registered enterprise, the process is similar to using traditional fiat currency. However, it's crucial to differentiate between trading digital currency and using it as payment for taxable supplies.
Receiving Digital Crypto Currency:
If you receive digital currency as payment for a taxable supply, you must report the GST amount in Australian dollars on your business activity statement (BAS). Your tax invoice should adhere to the standard requirements and include either the GST payable in Australian dollars or sufficient information to calculate the GST amount.
Sufficient information could include the price or value expressed in Australian dollars, the conversion rate used by the supplier, or a statement that enables the determination of the GST payable if it is not in Australian dollars.
Using Digital Crypto Currency:
When you use digital currency to make a purchase for your GST-registered enterprise and intend to claim a GST credit, the GST amount of the credit in your BAS must be in Australian dollars. Your tax invoice should provide the GST amount in Australian dollars or include sufficient information to determine the GST amount.
Converting Digital Crypto Currency:
To accurately report the value of your digital currency for your BAS, you need to use the exchange rate on the conversion day. The exchange rate can be sourced from a digital currency exchange or website or be agreed upon between the supplier and the recipient.
If the exchange rate is in a foreign currency, you must convert the amount to Australian dollars. The Foreign Currency Conversion Determination 2018 provides the formula for converting foreign currency to Australian dollars.
Determining the Conversion Day:
The conversion day is the date on which you convert your digital currency into Australian dollars. The specific rules for determining the conversion day depend on whether you account for GST on a cash or non-cash basis.
For businesses accounting for GST on a non-cash basis, the conversion day is determined by the earlier occurrence of either the day you receive any payment or the transaction date/invoice date. On the other hand, businesses accounting for GST on a cash basis have more flexibility, and the conversion day can be the transaction date, invoice date, or the day you receive any payment.
This blog has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances, please feel free to contact us on 02 9411 5422. We can help make sure the right method is used to give you the maximum possible tax deduction associated with any of these methods.