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The Tax Man Comes To Virtual Australia

Posted by Zonk on Tue Oct 31, 2006 01:21 PM
from the need-to-hire-virtual-accountants dept.
The Almighty Buck Entertainment Games
shadrach_au writes to mention that what was being considered in the states is now apparently policy down under: your virtual assets can be taxed. The Australian Tax Office (ATO) is warning citizens to consider whether their gaming 'is a hobby or a business' and act accordingly. From the article: "If a virtual transaction has real world implications — if it can be attributed a monetary value — it attracts the attention of the Tax Office. Sites such as slexchange.com set rates for swapping Second Life's Linden dollars for 'real' money. 'The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars,' the ATO spokeswoman says. 'In addition, there may be GST (goods and services tax) to consider.' In other words, if you are turning over the equivalent of more than $50,000 selling virtual jewelery to Second Life avatars, you must get an ABN (Australian Business Number) and register for GST."
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The Tax Man Comes To Virtual Australia 50 Comments More /

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  • My income is taxed.

    Regardless of what service you provide, you should also pay taxes. Give to Ceaser what is Ceasers.
    • I agree, the business has to be turning over "more than $50,000", which is quite a lot of money really - they should pay the same as anyone else.

      Other than that "Give to Ceaser what is Ceasers", I have one of his Denariuses - but he's been dead for 1800 years, do I really have to give it back?
      • I have one of his Denariuses - but he's been dead for 1800 years, do I really have to give it back?

        It's Holloween. Be careful what you wish for.

    • Re: (Score:3, Insightful)

      by Harinezumi (603874)
      Virtual currency should be taxed when, and only when, real-world currency is exchanged for it. Until such a point no taxable transaction takes place, since any goods exchanged between characters in-game remain the property of the game operator before, after, and during the transaction.

      Once real money enters the picture, though, the transaction becomes as taxable as any other exchange of money for services.
      • If you buy and sell stock online, is that virtual currency or "real" currency?

        Better yet, what about commodities and futures! There you're not buying anything at all...
        • When you buy stock or commodities, online or otherwise, their legal ownership changes hands from the previous owner to you. Likewise, buying futures represents a legal contract for a future exchange of legal ownership.

          The issue I have with taxing purely in-game transactions is the fact that the objects exchanged remain the exclusive property of the company running the game, who explicitly denies any legal responsibility for them.

        • buying and selling stocks works the same way - you only pay the tax when the money is exchanged for the stocks (when they are bought or sold). You don't pay tax ever time a stock goes up, you only pay when you sell it.

          Why should online money (Linden dollars) be any different?

          If I were these people though, I would be arguing that the income should count as a capital gain, not as business income. It's more like a capital gain than running a business.
    • No, this is something different and stupid.
      You'd support the government getting their cut when the "virtual" money is exchanged for real money. That's sensible. This issue is about treating in-game points (virtual money) WITHIN THE GAME, just because there are external agents willing to trade points for money.

      I'll wander away from the SL mechanics itself for a more familiar example: You've just slain ten ogres with your ogre-slaying knife, +9 against ogres, or whatever. The ogres drop 200 gold. So you g
      • You realize, of course, that this isn't unusual, right?

        If you bought a home in the 1920's in a rural area with 0 property tax, and now a city has grown around you, you are now expected to pay property tax. NOT at the cost that you bought it for, but at it's potential resale value.

        The belief is, that you are using the same services as your neighbours. Access to street cleaning, garbage removal, sewage services, etc. YOU may not have chosen for the city to grow around you, but you have no recourse.

        This is one
        • IDNRTF (I did not read the article). Are they discussing taxing in general or income tax? In order to tax income, you had to have gained something of monetary value. Like stocks, vitual assets have no value until you cash them in, so you should not be taxed until you sell them.
        • Indeed, if you bought a house in the 1920s, you'd have to pay property taxes today. These taxes would support city services, the road to your street, police to serve and protect, and a fire department for when your kids play with matches. The land and the house represent scarce resources in demand by you and your neighbors and have an inherent value.

          Those 10 slain orcs and 200 gold pieces don't represent anything. Blizzard servers giveth and taketh away, orcs regenerate and do not represent scarce resour
          • I think that you've stumbled onto an excellent idea there... Game police. Where do I sign up?

            I think that ultimately, I agree that if you make a living off of a game, you should pay taxes. Anything that EVENLY distributes the tax base is a good idea.
    • "Give to Ceaser what is Ceasers."

      I do not think this means what you think it means. [praxeology.net] There might be his head and name on the coin, it does not make it his. All tax is theft, and is a sin.
      • The "Caesar" Jesus was talking about wasn't Gaius Julius--that one died 40 or so years before Jesus was born.* It was Augustus.
        *We know Caesar died on 44 BCE. We don't know when Jesus was born although most modern estimates are around 5-6 BCE.
        • Ah, Augustus, the emporor that died in 14AD when Jesus was 16 or so. I think you might be thinking about Tiberius right there.
  • I wonder if I can pay taxes in World of Warcraft gold.
    • Sure, we'll let you pay taxes in WOW gold. We'll let you write off donations to charitable causes such as,"The be nice to newbies fund." But if your account gets suspended, you still have to pay up and can't sue Blizzard. Thats right, a fate worse than paying money: paying money to level a character back up to 60.
    • Not only that, but our GST (like the UK VAT) only applies to transactions where the purchaser is a tax resident in Australia. Everybody on WOW / SL could simply say "I'm in California" and they're not eligible to pay our GST. This whole thing is unenforceable and well, stupid.
  • Somehow I suspect the Australian tax authorities won't accept payment in Linden dollars. (I suppose it depends how much their MPs are into Second Life...)
    • If they won't take payments in L$, you can go to www.slexchange.com - just like the article said - and convert it back to AUS$ - and then pay the tax man.

      • Re: (Score:3, Insightful)

        by TheSHAD0W (258774)
        That could actually be really bad. I've seen problems occur w/ that sort of transaction: The government assesses a levy in AU$ on your L$ income - but by the time you're ready to pay the levy, something happens to the exchange rate and you're toast.

        This happened to some people when Enron fell apart: They took a stock option deal, and incurred a tax on the difference between the option price and the value at the time of acceptance; but by the time the stock actually vested, it was worthless. They were st
        • Usual disclaimer applies: Speculating/trading in [anything] carries a high risk to your capital. You may lose more than your initial deposit. Only speculate with funds that you can afford to lose. Understand the risks. Seek expert advice if necessary. .. you can't say "these people got screwed because they took a risk and failed". The reason you would stand to make so much money on them is partly because involved. That's how the entire stocks and shares and foreign exchange market works. You speculate on so
        • So, if you get permanently banned from Second Life as part of a guilt-by-association political move [3pointd.com], can you claim your L$ balance as a capital loss?
        • If you wait till later to pay the taxes currency changes can always get you.
          Whenever you convert currency to calculate your gain/income, also convert enough of the asset to cover your tax liability.

          You need to handle your L$ assets like any other foreign currency liability.
    • Somehow I suspect they won't accept payment in USD either. Doesn't mean you don't have to pay taxes on income you get as USD.
  • It's still a real world transaction, so it shouldn't come as a surprise that it's taxable.

    If you design graphic artwork for a website, you get taxed when you get paid for the work, even though it's not something designed to be used outside of the computer.

    Game pieces are really no different.
    • Here's what I'm worried about:
        If you sell a virtual necklace for 1000 virtual dollars, and those 1000 virtual dollars are worth $50 on the open real world market, then could you be taxed on that $50 regardless on whether you converted those 1000 virtual dollars to currency or not?

      -Rick
      • Yes.

        That's how taxation and earnings in foreign currencies work.

        I'm in New Zealand. I do work for some clients in Australian Dollars. When the end of the year rolls around any Australian Dollars I retain (I have not exchanged) need to be declared in an equivalent New Zealand dollar value at an approved exchange rate. When I do get around to exchanging I will either make a gain (income) or loss (expense) because of the fluctuation between what I declared that income to be worth, and what it actually ended

        • Re: (Score:2, Interesting)

          by Volante3192 (953645)
          Well, if you're making a business out of it, and are required to get a business licence, you should be guarenteed the same protections as any other business. It's part of your livelyhood. If SL crashes, you're now out of income. Can this be applied to unemployment? Can you get insurance?

          Taxation is supposed to be a guarentee of protections and services from the government.

          Plus, I think a FDIC insured SL bank would just be hilarious...
  • first they take your guns... then they take what ever the hell they want.
    • Bah I know! First my Corp taxes me and then the government does too! When will it end? :(
       
      *Releax it is a joke!*
  • Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. - Ronald Wilson Reagan
    • Uh, yeah. If Ronnie said "it," I'm not sure it really needed to be said. All that much. I think that fucker still owes me and my kids $2.5 trillion.
  • 50,000 AU$ equates (based on Google's AU$->US$ conversion, and the current Purchase Rate estimate from the offical Lindex US$/L$ exchange) to somewhere over 10 Million L$. Figure is subject to drift of those exchange rates, but it gives you a decent enough yardstick.

    That is a very, *very* non-trivial amount of in-game cash. You would have to be doing a massive number of sales, or selling insanely high-ticket items, to meet that sort of level of income. As a comparison, the most expensive "sensible" items
  • Since Second Life is hosted in California, presumably no *actual* income is generated until Lindens are converted into $AU and downloaded into an account *in Australia* (or an account under the control of a citizen of Australia.)

    This has interesting implications for citizens of America too. Every state has a reciprocal state tax arrangement with every other state: you earn income in only one state or another, so you cannot be doubly taxed by both states. Now, does this mean that any income earned in Sec

  • This is so not news.

    Life is hard, in Australia we must pay tax on all income derived in Australia and abroad. This includes the net.

    If I trade virtual services for virtual money, all good; If I convert those virtual services or monies into ACTUAL money or trade (vurtual services or money traded for a tangible good, such as a game "time card") it is subject to assessment.

    If you have ANY business which generates more than 50,000 AUD (AUD, not wibblewubble dollars) income, you MUST register with the tax offic
      • TFA states "If a virtual transaction has real world implications -- if it can be attributed a monetary value ...." The point missed was by you Anonymous... the article clearly states that only transactions with real monetary value are taxed. If I buy in game money/item/asset for real money, taxable. If I buy in game money/item/asset with ingame money, not taxable.

        The danger comes when there is enough "gold" trading online that the ATO can define ALL in game transactions as having a monetary value due to
    • Why could they not? They already do the same thing with real world foreign currencies. Make money in US dollars, get taxed in Australian dollars. It happens all the time.

    • Re: (Score:3, Informative)

      by patio11 (857072)
      >> ... otherwise it is taxation without representation, eh?
      >>

      No. The complaint about "taxation without representation" means something different entirely. The complaint was not that Britain didn't provide infrastructure in the colonies. They did, indisputably -- magistrates, courts, soldiers, all that jazz. The problem was that Britain refused to allow the Americans a say in how they were governed, both in how the money was spent and how those magistrates, courts, and soldiers acted. They c
    • Not really. They're not involved until real money switches hands. Even though the product is not a tangable object how is this any different from being taxed for music, books, films or software I can download?

      I would disagree with this move if the transfer of "money" was between second life's currency directly into everquest gold but this isn't the case.
    • Nope.

      They are taxing the income of residents of Australia. Something that is perfectly within their sovereign power and perfectly logical.

      It is perfectly standard for countries to tax the worldwide income of their residents. On the other hand, the US goes one step further and taxes the worldwide income of citizens regardless of their residence. Now that is obscene.
    • >> Sort of like taxing all the satellites that fly over Australia.

      You have to pay the Goods & Services Tax on satellite TV in Australia.
      • "Everyone owes and everyone pays." (Gangs of New York) It's seen as their right to take your money (tax you) since they provide services. The truth is, you could go your entire life without using a single one and it doesn't matter because they're going to get their cut.
      • And you think that'd stop the statemen from stealing your income, illegal or not ? In my country prostitutes have to pay taxes, even though prostitution is still illegal.

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