Is it legal (and ethical) to remunerate your employees in cryptocurrency?
By Mustafa Arifeen
In an economy eroded by pandemics and war, it is ethical to pay your employees in volatile, digital assets? Does Australian legislation even accommodate cryptocurrency as a replacement for a crisp cheque or dependable account transfer? Whether you, my law colleague, loathe blockchain technology or embrace it, there is no denying that cryptocurrency has gained significant traction over the last five years. With media outlets often spotlighting the potential profits to be made, it is easy to be seduced by the success of a few.
What is cryptocurrency?
In its simplest form, cryptocurrency is a secure, virtual currency that can be exchanged directly between two parties without the need for a central authority, such as bank. As these transfers are decentralised, cryptocurrency is purely a ‘peer-to-peer’ system. The transfer of this cryptographic money can be compared to handing mail directly to an individual without an intermediary postage company. The second difference is that the value of cryptocurrencies is purely driven by supply and demand. Of course, the trade-off is that with zero government and bank intervention, your beloved digital investment will not receive the same level of regulatory protection as other financial products.
Can I pay my employees in this digital currency?
According to the Australian Taxation Office (ATO), a salary sacrifice arrangement may allow employees to exchange part of their entitlement for benefits of a similar value. In effect, the employees would be able to receive cryptocurrency payments for part of their salary, but it would become a fringe benefit. According to TD 2014/28, the provision of Bitcoin, which is a type of cryptocurrency, satisfies the definition of a ‘property fringe benefit’ for the purposes of subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986. Consequently, the employer will be subject to fringe benefits tax. Alternatively, if no salary sacrifice arrangement exists, the employer is required to meet their Pay As You Go (PAYG) obligations on the Australian dollar value of the cryptocurrency that is paid out.
Is it all ethical?
Even once the law surrounding crypto-renumeration becomes ‘black and white’ in the near future, there will be no avoiding the volatile nature of cryptocurrency. For instance, Ethereum, which is one of the most popular types of decentralised digital currency, hit a high of $4754.23 on 9 November 2021 before experiencing a 50.52% decline and plummeting to $2352.36 on 25 January 2022. Conversely, another currency by the name of GALA surged over 400% in a single week in November 2021. Of course, one may argue that the stock market also suffers from a degree of unpredictability. However, there are several factors that govern share price as opposed to mere supply and demand, ultimately rendering stocks to be less volatile. Arguably, then, it would be safer and a tad more ethical to remunerate in shares than cryptocurrency.
Conclusion
Without substantive declarations from the ATO with regards to the tax treatment of cryptocurrency, it will fail to become a mainstream form of remuneration like fiat money. It is recommended that a new Tax Determination be published by the ATO with updated terminology, such as specific reference to ‘cryptocurrency’ rather than merely ‘Bitcoin.’