Taxes

If demcos and individuals need to pay Australia income tax in dollars, how do we deal with the potential currency reserve issues this could create??

Crypto Tax Australia Guide 2022 | Cryptocurrency Tax | Swyftx

  • First and foremost, the Australian Tax Office (ATO) does not view cryptocurrency as money, either Australian Dollar or any fiat currency. Instead, it is viewed as ‘property,’ a CGT asset for tax purposes (Capital Gains Tax)
  • As previously mentioned, the ATO classifies digital currency as a CGT asset, similar to a share in a company. It is therefore required to assess your capital gains each time you trade, sell or gift your crypto assets or have any other type of disposal event. There are several types of capital gains events, and we’ll discuss these in the section below.

Australia Officially Ends Double Bitcoin Tax – CoinDesk

Australians will no longer have to pay goods and services tax (GST) on cryptocurrency purchases.

Report – Parliament of Australia (aph.gov.au)

  • [A] digital representation of value that can be digitally traded and functions as (1) a medium of exchange; and/or (2) a unit of account; and/or (3) a store of value, but does not have legal tender status (i.e., when tendered to a creditor, is a valid and legal offer of payment) in any jurisdiction. It is not issued nor guaranteed by any jurisdiction, and fulfils the above functions only by agreement within the community of users of the virtual currency. Virtual currency is distinguished from fiat currency (a.k.a. ‘real currency’, ‘real money’, or ‘national currency’), which is the coin and paper money of a country that is designated as its legal tender; circulates; and is customarily used and accepted as a medium of exchange in the issuing country. It is distinct from e-money, which is a digital representation of fiat currency used to electronically transfer value denominated in fiat currency. E-money is a digital transfer mechanism for fiat currency—i.e., it electronically transfers value that has legal tender status.
  • Digital currency can be divided into two basic types: convertible and non-convertible digital currency. Convertible digital currency has an equivalent value in real (fiat) currency and can be exchanged back-and-forth for real currency (Bitcoin is an example of convertible currency). Non-convertible digital currency, on the other hand, cannot be exchanged for fiat currency and is intended to be specific to a particular virtual domain or world, such as a massively multiplayer online role-playing game, for example World of Warcraft Gold is a non-convertible digital currency
  • individuals who make personal use of digital currency (for example using digital currency to purchase items to buy a coffee) and where the cost of the Bitcoin was less than AUD$10,000, will have no CGT obligations

 

Problems

  • If taxes must be paid by demcos and individuals in dollars, then that could be a drain on the arcology’s currency reserves. Every month, people would need to buy host nation’s currency to pay their taxes.
    • question: could this lead to a currency deficit? If people buy dollars and pay taxes with it, then those dollars leave the arcology. There needs to be enough dollars coming in to balance the whole thing out.
      • but what about the internal economy. It would circulate trade internally without any dollars at all, but it would count as taxable income, thus the need for dollars.
      • demcos and remote workers would steadily bring in dollars. They would generally trade those dollars for arcos, to consume local services and pay employees.
      • The dollars would sit in the arcos bank account and not move, until someone needed to buy them to pay taxes.
      • Assume 1$ = 1 credit. Say one dollar comes at the beginning of the month, and sits still until the end of the month, when it’s time to pay taxes.
      • in the meantime, the equivalent one credit circulates 10x thru the economy, generating 10 credits worth of income. This will create a tax liability of $3, spread among the 10 people whose hands that 1 credit went thru. Thus collectively, those 10 people will try to buy $3 from the arco, but the arco only has the $1 on hand, and thus has a problem.
  • if credits are considered cryptocurrency, then they’re not money, which will make calculating income and capital gains taxes pretty hard.
    • the currency is flowing in and out of purses every few seconds.
    • in principal, if it’s an outflow, that would probably be a disposal event, which would generate a tax liability.
  • Australia definition of money: Definition of Money
  • Over time, dollars will inflate and lose value, while credits will be regulated to maintain their value. Over time you can expect the value of credits to increase relative to the dollar.
    • on the converse, you have constant demurrage and tax streams, which could be considered a disposal event.
      • could you account for that as a ‘loss’, or financial fee, to offset the cost of capital gains?

Bonds

  • Don’t bonds have the same problem as taxes? After all, they’re issued in fiat currency.
  • Could you issue them in arco credits? No.
    • first of all you need hard currency to buy construction materials and pay external contractors.
    • also, when you pay back the bond, what will the holder, living outside the arco, do with them? Probably try to trade them for hard currency, which would again cause a depression of the arco currency, meaning the bond holder wouldn’t get much value out.
    • they could try to re-invest it in the arco, but that’s not easy, as demcos are worker owned, and most physical property is publicly owned.
  • So you have to issue bonds in fiat currencies, and then pay them back that way.
  • for bond servicing (an annual % of the bond principal), this might be ok. Unlike taxes, the amount to be serviced is fixed and doesn’t depend on the velocity of money within the economy.
    • also you have regular, large amount of hard currency coming in because demcos and individuals make money in the wider world, then exchange it for credits at the exchange.
  • When it comes time to pay the bonds:
    • the economy may be rich enough that you could now pay them by issuing lower yield bonds. you wouldn’t wipe the debt, you’d lower the servicing costs. This could be done to cover any shortfalls, and would almost certainly play a major role in paying off the first few tranches of construction bonds.
  • How would you actually pay them off?
    • You have to gather enough hard currency to do it.
    • The city, which is responsible for them, is collecting cashflows from the people who bought apartments.
    • It’s going to need to continuously exchange as much of that cashflow as possible for dollars and build up its foreign-currency reserve.
      • Some/Most of those reserve currencies can be held in interest bearing bonds, to help them grow and shield them from inflation.
    • when it comes time to pay the bonds, as many of them are paid off as possible, while the rest are refinanced.
    • This cycle continues until the bonds have been completely paid off.

Note for building future arcos:

To save costs on building the first arco (Construction Notes), we’ll build up a sizable production capacity, which will be in surplus once the arco is finished.

  • That means we’ll have spare production capacity, and a sufficient workforce on-site to build the next arco.
  • Therefore, it will likely be possible that the next arco could be at least partially financed via cashflow swaps from the first arco. A combo of cashflows and bonds could work, with the bonds covering for the shortfall of arco-resident investors, and delivering the hard currency to buy materials that can’t be made on site, and the cashflows being ideal for paying the labor force, now composed almost completely of arco residents.

Brainstorming

  • Market Makers: say a demco saw this problem and tried to step in as a market maker, how would it do this?
    • for one thing, it would charge more for dollars, depressing the value of credits.
    • it would be earning credits and selling dollars.
    • where would it get the dollars from? ??
    • if it’s making a market, that means it’s both buying and selling dollars.
    • the market maker would be looking at its dollar reserves, and the demand for dollars, and would thus bid for dollars accordingly, at some high enough price, they would come out of the woodwork, and the maker could then resell those dollars at the best price they can get.
    • I think this would mean that the market would be liquid, but the value of arco credits would be depressed.
  • Floating Relative Value
    • if more people want to buy dollars than are available, the value of those dollars would rise relative to credits, thus depressing the value of credits.
    • however, if you’re declaring your taxes by working out your income in credits, and then working out the equivalent in dollars, then you’d use the forex value to make the conversion, if the value of credits is depressed, then your apparent income in dollars will be lower. Would everything thus balance out?