Taxation Law

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Based on this there are several implications to a business for using any of the two accounting methods to determine its income and thus its taxable revenue. Under the cash method, the taxable amount matches the cash or income that the business actually has at the end of the tax Year. However, under the accrual method, revenue that will be earned in the future is taxed. This may heart the businesses cash flow especially if it is a sole proprietor. For instance, in the present case, the cash accounting method the closing stock is less than what is derived from the accrual method. This is so because under the accrual method, all expenses were recognized for the period they belong. This means that the expense for stocks not used were not accounted for in the present period. Therefore, since the closing stock is carried forward to the next fiscal year, an overstated closing stock this will result in the undervaluation of gross profit and net earnings/profit on the other hand, an understated closing stock will result to and overvalued gross and net profits (New Zealand Society of Accountants ). For income tax, which is calculated on the gross profit, overstated gross profits will result into overstated taxes since income tax is a percentage of the gross profit and the opposite holds true. It is for this reason that large entities are encouraged to use the accrual method since it helps in ensuring that both revenues and incomes are matched to their actual fiscal year. Moreover, under the Australian law, all business with inventory is required to use the accrual method for the purpose if ensuring that each purchase and sale matches the period being taxed. This helps in eliminating the chances of overstating or understating the closing stock. In this regard, Beta Smash Repairs being an entity with inventory should use the accrual method even if it is a sole proprietor and its billing is below $ 75,000 annual.

Part C

According to the 2014, report on Virtual/ Digital currencies, Financial Action Task Force (FATF), digital currency was defined as a digital representation of value that can be used for transactional purposes as a medium of exchange, unit of account and or as a store of value. However, it does not have the status of a legal tender unlike fiat money and it is not E money as well. Generally, digital currency is broadly divided into two primary categories namely; convertible and non-convertible currency. The convertible digital currency’s value is equal to that of fiat currency and therefore it can be used for the purpose of transaction between parties a good example of convertible digital currency is Bitcoin. Conversely, non-convertible digital currency, is not exchangeable for fiat currency because it is intended for a specific virtual domain for instance in the online role-playing game domain. Warcraft Gold is a good example of non-convertible digital currency.

Further, digital currency is subdivided into two subtypes namely: centralized and non-centralized. From this categorization, all non-convertible digital currencies fall under the centralized subtype because they can only be distributed by a single administrating authority. However, convertible digital currencies fall under either centralized or decentralized subtypes. Decentralized digital currencies, also similarly referred to as crypto-currencies, and they have no central administrating authority and no central monitoring or oversight authority. Bit coin, Litecoin and Ripple are good examples of crypto-currencies[5].

The Australian Tax office (ATO) has on several occasions provided guidelines on tax treatment for transactions conducted through crypto-currencies for Bitcoin. In 2014, ATO suggested that Bitcon as well as other crypto-currencies must not be treated as an Australian currency for the purpose of tax. As such all transactions with Bitcoin should be considered to be similar to batter trade. Thus, Bitcoin should be considered to be a commodity for the purpose of business transactions. Moreover, the 2014 suggestion by ATO pointed that for the purpose of Capital Gains Tax, Bitcoin should be treated as an asset[6]. Further, under GST will be charged after buying the digital currency, business will incur tax after they supply digital currency and upon purchasing the digital currency. For income tax, all businesses providing services to exchange digital currency will pay tax on profits made, in addition, payments received inform of Bitcoin will be reported at the valued amount of Australian currency. Finally, for the purpose of Fringe Benefit Tax (FBT), payments made through digital currency are subject to tax if the employee has a valid salary sacrifice, otherwise, the normal salary PAYG rules will prevail[7].

According to the Commonwealth’s A New Tax System (Goods and Services Tax) Act 1999 (GST Act) any taxes, charges or fees in Australia or the discharging of the obligation to offset such payment, imposed under a state, territory or the commonwealth law is deemed to be the supply’s consideration and thus subject to GST. Consequently, a consensus was reached the states, territories and the Commonwealth holding that GST was not to be subjected to taxes and compulsory charges. Similarly, under Division 81-5 of the GST regulation, any Australian tax, fee, or charge mentioned in it is not subject to GST. These items have the following characteristics; they must have tax, a fee or a charge imposed on them under the Australian law. Secondly, that under the Australian government agency, the item is categorized as a payable.

Presently, it is expected that the Treasurer of the Commonwealth reviews the Division 81 determination two times annually, to ensure that it remains updated. During this process, every state and territory is invited to review the Division 81 determination and give recommendation where necessary. As such, if a new tax, fee, or charge is introduced, it automatically becomes subject to GST until the next review time for Division 81 determination. Nonetheless, exceptions for special determinations are allowed, but practiced under exceptional circumstances[8] (Tasmania Governemnt Treasury ). In this regard, if all states and territories agreed to expand the definition of ‘money’ in A New Tax System (Goods and Services Tax) Act 1999 to include digital currency; and to expand the definition of ‘financial supply’ in to include digital currency, then they would automatically be taxed.

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