It is becoming increasingly common for charities and not-for-profits around the world to accept donations in the form of cryptocurrency.
For Australian charities and not-for-profits looking to accept such donations, the ATO has provided a timely reminder of a variety of issues that arise where cryptocurrency donations are to be accepted, specifically:
- Organisations need to have the capacity to receive cryptocurrency donations;
- Organisation need to convert the value of the cryptocurrency donation into Australian dollars.
Capacity to receive donations
A non-exhaustive list of key requirements should an organisation to be able to receive cryptocurrency donations includes:
- Having a cryptocurrency wallet;
- Choosing a cryptocurrency exchange to allow the organisation to convert the cryptocurrency into Australian dollars; and
- Integrating the organisation’s website with the above wallet and exchange so that donations can be made to the wallet and/or sold upon receipt.
Due to the significant time and expertise of implementing the above manually, many organisations accepting cryptocurrency donations instead choose to partner with a donation processing platform. Some of the typical services provided by donation processing platforms includes:
- Providing branded website widgets to allow seamless donations (e.g. “donate” buttons for organisation’s websites);
- Integration with a partnered cryptocurrency exchange and wallet;
- Auto sell option to immediately convert cryptocurrency into fiat;
- Auto issuing of receipts to donors (which is relevant to the donor being able to claim a tax deduction under Australian tax law);
- Anonymous donations;
- Donor database management (for non-anonymous donations); and
- Donation tracking and reporting.
Two such donation processing platforms include The Giving Block and Blockchain Philanthropy Foundation. The latter being an Australian donation platform and the former being a platform which is used by various organisations such as Unicef Australia, Medicins Sans Frontieres Australia, Variety, Save the Children and The Life You Can Save . We note our reference to these platforms is not an endorsement by TaxEd in relation to either of The Giving Block or Blockchain Philanthropy Foundation. Organisations should ensure that they fully understand their own requirements and undertake their own due diligence before choosing a donation processing partner.
Value of cryptocurrency received
To value the cryptocurrency received, organisation’s can use a reputable cryptocurrency exchange to obtain the market price at the time of the donation. We note that some payment processing partners may automatically value the cryptocurrency at the time of issuing the receipt to the donor.
Other considerations
Whilst accepting cryptocurrency donations may be a way to encourage or enable donations to their organisations, organisations will need to consider the other implications of doing so.
Such considerations include the potential security issues of receiving and/or holding cryptocurrency donations (noting the risk of wallets and/or exchanges being hacked), whether anti-money laundering laws may have an impact on receiving cryptocurrency donations, the environmental impact of using cryptocurrency (e.g. the significant energy requirements of bitcoin – noting that bitcoin and the industry more generally is becoming more environmentally friendly) and the accounting treatment of cryptocurrency held at year end. There are also potential income tax consequences for organisations, that may not be income tax exempt, when receiving and disposing of cryptocurrency.