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The Tax Man Comes To Virtual Australia 91

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 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

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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.
    • by joe 155 ( 937621 )
      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 believe you both meant "Give to seizure what is geezer's", in reference to the high tax on inheritence.
        • If the geezer is Paris Hilton's dad, then I say that for Paris Hilton, a hundred million ought to be enough. High taxes are relative. Give me a billion and I'll gladly pay 90% tax. You would too.
      • 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.
      • by batkiwi ( 137781 )
        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.
        • Yes, but property taxes are a different kind of tax. And it is for just what you named, public education (the lion's share), fire, police, etc. It is a tax levied by a municipality or other authority because you own property within their boundaries.

          You are not taxed on the value of your home as income (or capital gains) until you sell it. The value may actually go up and down while you own it. Also you may choose to sell it for less than its "estimated" value (quick sale, etc.)

          Same goes for stocks
        • 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.
    • I say give unto Ceasar a knife in the back - or face. Whatever floats your boat.
    • by Jesrad ( 716567 )
      "Give to Ceaser what is Ceasers."

      I do not think this means what you think it means. [] There might be his head and name on the coin, it does not make it his. All tax is theft, and is a sin.
  • 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.
    • by G-funk ( 22712 )
      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...)
    • by NekoXP ( 67564 )
      If they won't take payments in L$, you can go to - just like the article said - and convert it back to AUS$ - 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
        • by NekoXP ( 67564 )
          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
        • by jafuser ( 112236 )
          So, if you get permanently banned from Second Life as part of a guilt-by-association political move [], 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.
    • by Goaway ( 82658 )
      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.
    • Are contracts made between characters in SL legally binding? If someone defaults on a payment in L$ can they be taken to court? If this comes to the US, would banks in SL have FDIC backing?

      If yes, then I see no reason why it shouldn't be taxed at some point.

      However, if I lose L$ through a method not of my choosing, and I have no legal recourse, they can bugger off.
      • by disasm ( 973689 )
        I think you kinda missed the article... If you exchange virtual money for real money, then it is taxable, for example, if you made a diablo 2 character on, then sold it on ebay for a 1000, that 1000 would be taxable. Nothing wrong with this, just like every other business. Look at the bright side of this, now you can write off those game purchases and subscriptions as a business expense! Sam
        • 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...
    • 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?

      • 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
  • 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!*
  • I'm not sure why anyone would find this surprising. If you are making money by doing something, the taxman cometh.
    • But why?
      • "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.
        • by exick ( 513823 )
          If you are able to go your entire life without using a single state-provided service, then in all likelihood you are probably far enough off the radar that not paying taxes won't hurt you. Truthfully, you probably don't even need money if that's the case, so it's a non-issue.
  • I have no idea how second life works, but does this only include "virtual money" you convert to real money? How could you tax something that never get's converted to actual currency? Seems like a good way to bankrupt people who just want to play the game and not give a damn about making real money.
    • by exick ( 513823 )
      I doubt they'd be able to get away with taxing it while it's still in SecondLife dollars. If they tried, it would be fun to watch the first time someone with a huge amount of in-game assets killed their account and claimed a business loss.
    • 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.
  • They're essentially declaring sovereignity over somene's else virtual world. Sort of like taxing all the satellites that fly over Australia.
    • 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.
    • by Profound ( 50789 )
      >> Sort of like taxing all the satellites that fly over Australia.

      You have to pay the Goods & Services Tax on satellite TV in Australia.
  • by Stormwatch ( 703920 ) <.rodrigogirao. .at.> on Tuesday October 31, 2006 @02:44PM (#16661859) Homepage
    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.
  • Most EULA say you can not sell stuff for real money and some even ban you for doing it.
    also the Second Life Terms of Service says

    1.4 Second Life "currency" is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab.

    You acknowledge that the Service presently includes a component of in-world fictional currency ("Currency" or "Linden Dollars" or "L$"), which constitutes a limited license right to use a feature of o
  • 50,000 AU$ 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
    • The $50,000 limit is for the additional GST component. If you earn over $50,000 in a business you need to charge (and pay to the tax office) GST on your goods/services.

      If you make under that amount you are still going to have to declare the amount as part of your taxable income and will still pay tax on it, but you do not need to register for GST or charge customers GST. So this will affect everyone who uses gaming as a business whether they are making $50,000 or not.

  • Who else read as, and immediately wondered at sex changes becoming so popular in australia that the aussies had made a special tax category for them?
  • I think a number of people are missing the point of the article - it isnt really explained well. The tax office is not simply saying that if you make real dollar profits after making the conversion from virtual dollars to real dollars then you pay tax.

    They are saying that if you make profit in virtual dollars and even if you do not convert virtual dollars to real dollars, then you are still liable to pay tax (in real dollars!). The reasoning behind this is that theoretically everyone in australia could co

  • 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

  • Sure, yes, if a player converts her/his avatar's in-game resources into real world money, or accepts real world money from another person (presumably another player), taxes apply. No new laws needed.

    But an avatar does not exit outside the game. The avatar is really the property of the game's owners, which is leased to a player for some period of time in exchange for some fee. (The visual appearance and/or textual description, however, might be the intellectual property of the player, depending on the terms
  • I don't really mind what taxes they place on us, it's not asif I pay them anyway :P
  • 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
  • So does that mean I can claim my expenses for hardware and indeed my WoW subscription and even my DSL back on tax?

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