Characteristics of a Digital Payment Token
To qualify as a digital payment token, the token must have all of the following characteristics:
- it is expressed as a unit;
- it is designed to be fungible;
- it is not denominated in any currency, and is not pegged by its issuer to any currency;
- it can be transferred, stored or traded electronically;
- it is, or is intended to be, a medium of exchange accepted by the public, or a section of the public, without any substantial restrictions on its use as consideration;
but does not include:
- anything which, if supplied, would be an exempt supply of financial services;
- anything which gives an entitlement to receive or to direct the supply of goods or services from a specific person or persons and ceases to function as a medium of exchange after the entitlement has been used.
Examples of digital payment tokens are Bitcoins, Ether, Litecoin, Dash, Monero, Ripple and Zcash.
Supply of Digital Payment Tokens from 1 Jan 2020
The following supplies of digital payment tokens are exempt from GST:
- Exchange of digital payment tokens for fiat currency or other digital payment tokens
Example 1: Exchange of one digital payment token for another
You exchange Bitcoin for Ether from GST-registered company A. With effect from 1 Jan 2020, both your supplies are exempt from GST— your exempt supply of Bitcoin and A's exempt supply of Ether. Both of you do not have to charge or account for output tax. Instead, both of you will report the net realized gain/loss from your exchange transactions as exempt supplies in your GST returns.
- Provision of loans of digital payment tokens
Example 2: Loans of digital payment tokens
You make loans of Digital Payment Token Z in return for interest income. With effect from 1 Jan 2020, you will report the interest received as your exempt supplies in your GST return.
The use/ provision of digital payment tokens as payment for anything (other than fiat currency or other digital payment tokens) is disregarded as a supply for GST purposes.
Whether digital payment tokens or fiat currency are used to purchase goods and services, GST is chargeable only on the supply of goods and services, unless the supply is an exempt, zero-rated or out-of-scope supply.
Example 3: Use of digital payment tokens as payment
You use Bitcoin to purchase software from GST-registered company B. With effect from 1 Jan 2020, you will not be considered as making any supply of Bitcoins and thus, will not need to account for output tax. Company B will have to account for output tax on its supply of software.
Please refer to GST: Digital Payment Tokens (PDF, 293KB) for more information on the characteristics of Digital Payment Tokens and the GST reporting requirements.
Supply of Virtual Currencies (Including Digital Payment Tokens) Before 1 Jan 2020
Before 1 Jan 2020, the supply of virtual currencies (including digital payment tokens) is treated as a taxable supply of services. Where you supply virtual currencies in the course or furtherance of a business, you will be liable for GST registration if your annual turnover exceeds $1 million.
Once registered, you will have to charge and account for GST on your supply of virtual currencies.
Should you use virtual currencies to pay for goods or services, a barter trade situation will arise — you will be regarded as supplying the virtual currencies in return for the supply of goods or services rendered. You will have to account for GST on your supply of virtual currencies. If your supplier is GST-registered, your supplier will have to charge GST on the supply of goods or services (where the supply is taxable).