Should the double taxation of digital currency be abolished or not? The Australian government begins soliciting public feedback

In March, the Australian government released a multifaceted policy statement on financial technology, including digital currencies and broad blockchain applications.

In the statement, the Australian Treasury announced that it is looking for ways to reduce the Goods and Services Tax (GST), which effectively applies double taxation to Bitcoin, meaning that users are taxed both when buying and spending digital currencies.

Earlier this week, the government released a discussion paper outlining some of the options. The paper was released by Treasury and draws on insights from a Senate report.

One option, according to the government, is to make digital currencies an “input taxable financial supply” — meaning they would be subject to taxation rules similar to those for stocks and loans.

The report states:

Taxing the supply of digital currency as an input financial supply means that GST is no longer required, eliminating the “double tax” imposed on consumers.

The bigger change is that this move will classify digital currencies as legal tender, a move that the Australian Senate recommended last year.

“Treating digital currencies to be equivalent to legal tender for the purpose of eliminating GST would mean that using digital currencies to trade for goods or services would no longer constitute a ‘supply’. In this case, digital currencies would not be subject to GST, but GST would still be applied on the supply of goods and services purchased using digital currencies.

Recently, the Australian government said they may completely abolish GST on digital currencies. The report also stated that this move may give digital currencies "preferential treatment" which may "distort the market" to some extent.

At this stage, it is too early to say which approach is better, but the Australian Senate has expressed support for the abolition of GST on digital currencies, and this move has been welcomed by Australian digital currency supporters who have long hoped to implement such a plan.

The Australian Treasury is currently seeking public feedback until June 3.