Private ruling: GST and digital currency
Date of advice: 1 October 2021
Published: December 2021

Ruling: Q1: Do your activities from digital currency trading via a digital currency exchange outside of the indirect tax zone constitute GST-free supplies for the purposes of either (or all) table item 2(a), table item 3 or table item 4(b) of subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act)? | A1: Yes, your activities from digital currency trading via a digital currency exchange outside of the indirect tax zone are GST-free supplies under subsection 38-190(1) of the GST Act. | Q2: Does the answer to Question 1 change if the trading activities conducted on the digital currency exchange outside of the indirect tax zone are undertaken in Australian dollars rather than in a foreign currency? | A2: No. Your activities from digital currency trading via a digital currency exchange outside of the indirect tax zone are GST-free supplies under subsection 38-190(1) of the GST Act when undertaken in Australian dollars.

Relevant facts and circumstances: You are an Australian registered and incorporated company and are registered for the goods and services tax (GST). You are part of a digital currency mining pool based outside of the indirect tax zone. You trade digital currency on a digital currency exchange outside of the indirect tax zone. For ease of currency conversion and to minimise foreign exchange costs and risks, undertake any digital currency transaction in Australian dollars (AUD) rather than in a foreign currency such as US dollars. You do not have any visibility over the counterparty as the counter-party's identity is never exposed. This private ruling is solely concerned with a specific trade.

Relevant legislative provisions: A New Tax System (Goods and Services Tax) Act 1999 Section 9-5 | A New Tax System (Goods and Services Tax) Act 1999 Subsection 9-10(4) | A New Tax System (Goods and Services Tax) Act 1999 Paragraph 9-15(1)(a) | A New Tax System (Goods and Services Tax) Act 1999 Subsection 38-190(1) | A New Tax System (Goods and Services Tax) Regulations 2019 Subsection 40-5.09(1) | A New Tax System (Goods and Services Tax) Regulations 2019 Subsection 40-5.09(3)

Reasons for decision: Detailed Reasoning - Taxable supply: You are liable for GST on any taxable supplies that you make. You make a taxable supply under section 9-5 of the GST Act if you: a) make a supply for consideration b) the supply is made in the course or furtherance of an enterprise that You carry on c) the supply is connected with the indirect tax zone, and d) are registered or are required to be registered for GST. However, the supply is not a taxable supply to the extent that it is GST-free or input taxed. | Detailed Reasoning - Issue 1: For supplies or payments made on or after 1 July 2017, the GST treatment of digital currency is aligned with that of money. As per subsection 9-10(4) of the GST Act the effect is that a supply of digital currency is not treated as a supply unless it is provided as consideration for another supply of money or digital currency. If there is such a supply, it will be treated as a financial supply. Goods and service Tax Ruling (GSTR 2002/2) Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions paragraph 7 states: 7. The GST Act provides that financial supplies are input taxed. Not only financial institutions make financial supplies. You may make financial supplies in the course of carrying on your enterprise if you provide, acquire or dispose of an interest listed in the GST regulations in circumstances that satisfy the requirements for a financial supply under those regulations. No GST is payable on input taxed supplies. Subsection 40-5.09(1) of A New Tax System (Goods and Services Tax) Regulations 2019 (GST Regulations) provides that the provision, acquisition or disposal of an interest mentioned in the table in subsection (3) is a financial supply if: a) the provision, acquisition or disposal is: i) for consideration; and ii) in the course or furtherance of an enterprise; and iii) connected with Australia; and b) the supplier is: i) registered or required to be registered; and ii) a financial supply provider in relation to supply of the interest. Item 9 in table subsection 40-5.09(3) of the GST Regulations states an interest is an interest in or under: 9. Australian currency, the currency of a foreign currency, digital currency or an agreement to buy or sell any of these 3 things. However, as provided in subsection 9-30(3) a financial supply will not be input taxed to the extent that it is GST-free. Subsection 38-190(1) of the GST Act sets out in a table those things, other than goods or real property, for consumption outside the indirect tax zone (Australia) that are GST-free. GSTR 2002/2 provides: 61. Where the supply is the provision, acquisition or disposal of a financial interest, the connection with Australia turns on whether the interest is provided, acquired, or disposed of in Australia. Whether an interest is provided, acquired or disposed of in Australia will depend on how, the provision, acquisition or disposal is effected. For example, if the interest is created, issued or transferred by the execution of a written contract, the creation, issue or transfer of that interest is done in Australia if that contract is made in Australia. Example 3: Provision of a financial interest - the thing is not done in Australia 62. Quokka Australia Ltd buys shares in a New Zealand company Bilby Ltd through a broker in New Zealand. The contract for purchase is made in New Zealand. The issue (or provision) of the interest in the securities is done in New Zealand as this is where the contract is made. Table item 2 of subsection 38-190(1) of the GST Act provides that a supply will be GST-free if it is made to a non-resident who is not in the indirect tax zone when the thing supplied is done and a) the supply is neither a supply of work physically performed on goods situated in the indirect tax zone when the work is done, nor a supply directly connected with real property situated in the indirect tax zone or b) the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered for GST. GSTR 2002/2 further states that: 153. The supplier must be satisfied, on reasonable grounds that the entity it supplies to is not required to be registered. Where a supplier has reason not to be so satisfied, enquiries should be made of the recipient. 154. We accept that the supplier has reasonable grounds for being satisfied, if the entity has provided a statement, declaring that the entity is not required to be registered. This is provided the supplier has no other reason to believe that the statement is not accurate. 155. Having a statement from the recipient is not the only way in which a supplier may be satisfied that the recipient is not required to be registered. 155. Having a statement from the recipient is not the only way in which a supplier may be satisfied that the recipient is not required to be registered. Table item 3 of subsection 38-190(1) of the GST Act provides that a supply will be GST-free if it is made to a non-resident who is not in the indirect tax zone when the thing supplied is done and the effective use or enjoyment of the supply must take place outside Australia. Further, the supply must neither be a supply of work physically performed on goods situated in Australia when the work is done, nor a supply directly connected with real property situated in Australia. Table item 4 of subsection 38-190(1) of the GST Act provides that a supply will be GST-free if it is made in relation to rights for the use outside of Australia or must be made to 'an entity that is not an Australian resident' and is 'outside Australia' when the thing supplied is done. Goods and Service Tax Ruling (GSTR 2004/7) Goods and services tax: in the application of items 2 and 3 and paragraph (b) of item 4 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999: • when is a 'non-resident' or other 'recipient' of a supply 'not in Australia when the thing supplied is done'? • when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done'? Paragraph 121 of GSTR 2004/7 states: 121. A supply that is made to a company is a supply to a non-resident if the company is not a resident of Australia, as defined in subsection 6(1) of the ITAA 1936, for Australian income tax purposes. 122. As defined in that subsection a company is a resident if the company is incorporated in Australia or, if not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. Paragraph 198 of GSTR 2004/7 states: 198. The phrase 'the thing supplied is done' has the same meaning as the expression 'the thing is done' in paragraph 9-25(5)(a). Under that paragraph, a supply is connected with Australia if the thing is done in Australia. Paragraph 181 of GSTR 2004/7 states in relation to when is 'an entity that is not an Australian resident' 'outside Australia when the thing supplied is done': 181. The requirement that a supply is made to a non-resident (item 2), or recipient (item 3), who is 'not in Australia' 'when the thing supplied is done' is in effect a proxy test for determining where the supply to that entity is consumed. The presumption is that if the non-resident or other recipient of the supply is 'not in Australia' when the thing supplied is done, the supply of that thing is for consumption outside Australia and is GST-free, provided the other requirements of the item are met. Further to this GSTR 2002/2 provides: Determining whether the recipient is not a resident 166. Whether a supply is made to a non-resident is a question of fact to be established in each case. Section 195-1 defines a non-resident as an entity that is not an Australian resident. Australian resident is defined in terms of the definition of 'a resident of Australia' in subsection 6(1) of the ITAA 1936. This definition provides different tests for companies and individuals. Whether an entity satisfies the relevant test is essentially a question of fact to be established in each case, having regard to the decided income tax cases and any income tax public rulings issued. 167. While address information supplied by the recipient of a financial supply may be indicative that the recipient is a non-resident, it is not determinative. Where a financial supply provider has reason to believe that the entity is in fact an Australian resident, further enquiries must be undertaken. A financial supply provider must be satisfied that the recipient of the supply is a non-resident before they can treat a supply as GST-free. 168. In some circumstances, it may not be possible for a financial supplier in Australia to determine whether the counterparty to a transaction is a resident or a non-resident. This may be the case where the Australian enterprise supplies or acquires securities in an on-market transaction. Where it is not possible to determine the residency of the counterparty in an on-market securities transaction (and only in that circumstance) the Australian enterprise may use the following to approximate the residency of the counterparty: • the place the transaction takes place (that is, the location of the securities exchange through which the transaction takes place); • if it is not known where the transaction takes place, the place where the security is listed; • if it is not known where the transaction takes place nor where the security is listed, the place where the counterparty's broker is ordinarily resident. 169. To satisfy the requirements for a GST-free supply under item 2 in subsection 38-190(1), the non-resident must also not be in Australia when the thing supplied is done. Whether an entity is 'not in Australia' at the time when the thing supplied is done requires an analysis based on the facts. Therefore, as per paragraph 168 of GSTR 2002/2, a supply of a digital currency by an entity in Australia, traded via a digital currency exchange that is outside Australia', may be a GST-free supply under table item 2 of subsection 38-190(1) as it is not possible for the supplier to determine the residency of the counterparty to the transaction and the residency may be approximated by the location of the exchange through which the transaction took place. Table item 3 of subsection 38-190(1), may also apply to the disposal of digital currency by a supplier located in Australia to a recipient outside Australia at the time of the supply and where the effective use or enjoyment takes place outside Australia. However, as table item 3 of subsection 38-190(1) requires the supplier to determine the recipient is outside Australia at the time of the supply and that the effective use and enjoyment takes place outside of Australia this item is unlikely to apply in this circumstance. Table item 4 of subsection 38-190(1), may also apply to the supply of rights are for use by a recipient located outside Australia, as the supply is to an entity that is not an Australian resident and is outside Australia when the thing supplied is done. As determined for table item 2 of subsection 38-190(1), the location of the exchange through which the transaction took place can be an approximation for the recipient's residency for table item 4(b) to apply. | Detailed Reasoning - Issue 2: Paragraph 9-15(1)(a) of the GST Act provides that 'consideration' includes any payment in connection with a supply of anything. In this case, you have received consideration for the digital currency trade in the form of a monetary fee. We do not consider the fact that your trades are in Australian dollars rather than a foreign currency is relevant to the GST analysis of whether your digital currency trading via an overseas digital currency exchange is subject to GST or is GST-free under subsection 38-190(1) of the GST Act. In summary, where your activities from digital currency trading via an overseas digital currency exchange are GST-free supplies under subsection 38-190(1) of the GST Act, the GST status of this supply is not affected when undertaken in Australian dollars rather than in a foreign currency.