So unless you’ve been living under a rock you’ve probably heard someone bandying about the term ‘Bitcoin’ lately. People are selling luxury cars with them, you can rent and sell houses and you can order food, knick knacks and nerd shirts with the coin.
For those not in the know, Bitcoin is an anonymous, decentralised unit of currency, completely digital, that allows users to transact without going through banks or third party money handlers like PayPal.
It’s recently caught mainstream attention because of lost confidence in central currency, talks of integration with PayPal, increased acceptance at many online retailers and an increase in value from $13 for a coin at the start of the year to $100 at the time of writing this article. In fact today the first Bitcoin ATM was launched in San Fransisco, allowing users to convert their USD into BTC.
Where can I spend these internet monies?
People creating digital media are more than happy to take coins for your money, and more and more musicians online are posting their ‘wallet’, allowing people to pay or donate for the music, art or code they download. Exchanging an expression of an idea digitally for the digital ideal of value… poetic and high tech, my favourite.
While iTunes don’t take the coin yet, Coindl is an online aggregator of digital content that only accepts Bitcoins. Musicians, writers and artists can post their content online and you can buy whole albums for .029 BTC. Digital Tunes are following a hybrid model, but accept Bitcoin, allowing users to purchase songs and albums.
For merchants and artists alike the advantage of selling their creations using Bitcoin is that it reduces the merchant ‘friction’ that comes from upwards of 6% credit card fees, and exorbitant international transfer costs (often absorbed by the retailer, but passed on to the consumer).
Knife Party have actually released their new EP ‘Haunted House’ and have made it available to users to purchase using bitcoin.
Death, Taxes and Bitcoin
So… you wiley musicians are probably thinking, “these transactions, if they’re untraceable… well that basically means tax free money right?”(I’ve seen it referred to as online busking). But just like busking and other transactions that can’t be tracked, there is still an onus to declare income from it.
While the taxation implications for people profiting from their creative ethos in the Bitcoin arena haven’t been fully explored in Australia, it is still advisable to maintain best financial practice, tracking income and declaring profits and losses. In Canada it was declared taxable as normal income, and that any profits needed to be declared fully.
The issues the tax office will face will be tracing what are innately anonymous transactions, and it is likely that until the government catches up any accountability will result from an honours system more than anything.
As the system was created by libertarian crypto-anarchists it is likely that many transactions will go unreported, but for regular Joes utilising it as another way to transact it is likely that more and more Bitcoin income will be declared fully. Personally as a freelancer I do receive cash payment and accept Bitcoin for my work and I plan to treat both the same and declare income completely.
The main benefit here is that you avoid the overheads of third parties, whether banks or PayPal, for digital transactions. At GI & Sanicki Lawyers we like to be on the forefront of creativity and technology, and understand the benefits of innovation to growth, but good old fashioned book keeping, and a bit of professional advice about your obligations is advisable if you plan to transact using the coin.