Bitcoin and similarly constructed digital currencies will not be treated as money or foreign currency by the Australian Taxation Office.The ATO's landmark guidance means that Bitcoin won't be treated the same way as money for tax purposes. Instead, ten per cent GST will be charged when people buy Bitcoin. When that Bitcoin is then used to purchase goods and services in Australia, the usual ten percent GST will apply to the products being bought.This will lead to situations where users of Bitcoin pay GST twice.The ATO has also indicated that virtual currency will be considered an asset for capital gains purposes, although it has allowed a $10,000 personal threshold below which CGT will not be levied.The ruling was met with universal dismay by Bitcoin startups and digital currency associations which yesterday warned that it could drive many virtual currency startups offshore or underground.Bitcoin Association of Australia president, Jason Williams, said: "As Bitcoin is being used as money, it should be taxed as money."While the ATO's treatment of Bitcoin as a commodity rather than a currency is in line with the US Inland Revenue's approach, it is at odds with the regime in the UK which now treats virtual currency in the same way as it treats a foreign currency.There is industry concern that the fledging Bitcoin start up community in Australia may be tempted to go jurisdiction shopping and relocate in countries which do treat Bitcoin as currency. According to Williams, "applying double GST to some Bitcoin transactions will adversely affect investment in the Bitcoin economy and may push Bitcoin businesses to relocate to other, more favourable jurisdictions."The ATO's decision could also affect the willingness of businesses to accept virtual currency, according to Amor Sexton, specialist digital currency lawyer at Adroit Lawyers. She said the ATO decision would inject additional complexity and paperwork for businesses using or accepting Bitcoin.In addition, local Bitcoin exchanges would have to add ten per cent to the cost of Bitcoin in order to pay for the GST charged on Bitcoin purchases.Both Sexton and Reuben Bramanathan, senior associate at McCullough Robertson, are well versed in the debate, having this year prepared an issues paper for the BAA which it submitted to the ATO ahead of yesterday's ruling.Bramanathan yesterday claimed that the ATO decision would result in a "windfall gain to Commonwealth revenue, which is levied upon innovative Australian startups and technology businesses (using or accepting Bitcoin).  These businesses need incentives and support, and certainly not tax treatment that puts them at a significant disadvantage."Ron Tucker, chairman of the Australian Digital Currency Commerce Association, said he considered the guidance as just a "first step" in terms of the way the tax office treated digital currencies, but he acknowledged "the first domino may be falling the wrong way."He said he had hoped the ATO would learn from the UK where a consumption tax was originally applied to Bitcoin purchases, but then overturned when it was found to be stifling business.Tucker is also the managing director of Bitcoin exchange