Australia To Tax Money From Second Life, But Can Money Spent On Your Avatar Be A Write-Off?

from the H&R-Block-Next-To-Set-Up-In-Second-Life dept

Thu, Nov 2nd 2006 12:09pm — Joseph Weisenthal

There continues to be a lot of discussion about the real world implications of activity inside virtual worlds. One of the issues is how to deal with taxation, and it appears that Australia has taken the lead, announcing that they plan to tax money made in virtual worlds, specifically citing Second Life Linden Dollars. A spokesperson for the country's tax office said that if you're getting monetary benefit from the site, then it should be taxed like any other income. What's not clear is when the money is taxed. Do they tax you when you've cashed in your Linden Dollars for Australian Dollars? If they did this, the policy would make sense, as it's basically like a capital gains tax, which is levied after someone sells their stock. Or, do they tax the player based on their Linden Dollars even if they don't cash out. This would be a ridiculous policy as it would basically be taxing people for playing a game. Assuming it's the former, the taxation occurs after withdrawing the money, it could be a real boon for Second Life, as it would discourage people from taking money out of the in-game economy.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

19 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Celes, 2 Nov 2006 @ 12:26pm

The most likely method...
I'm not sure how Australia's tax system works, but it's more than likely that the tax would be levied when the money is converted from in-game money to real-world money, since there is no change in a gamer's financial position until he/she cashes out that money. Taxing the in-game money would be pointless unless the Australian government decides to accept Linden Dollars as payment.
[ link to this | view in chronology ]
BASTARDS, 2 Nov 2006 @ 12:33pm

STUPID GREEDY FUCKERS WANT TO TAX EVERYTHING!
[ link to this | view in chronology ]
Ryan, 2 Nov 2006 @ 12:34pm

Bad Direction
This better not lead other governments down the same dark path. There are many many gamers these days and we could all band together and overthrow small governments.
They used to be taxed in Second Life. They threw their own revolution and redid the system. Also, how would they be able to track every single person who plays Second Life in Australia?
[ link to this | view in chronology ]
- BenBishop (profile), 2 Nov 2006 @ 1:10pm
  
  Re: Bad Direction
  I'm sure the Australian government will just insist that the company running Second Life reports all monetary withdrawls from the game. In the US I could see them requiring a 1099 be issued at the end of the year for any amount withdrawn above a certain watermark (e.g. $600). Once you have a 1099 it would work as either a normal self-employment or as a hobby. I don't think it will be very hard for governments to track those bank transactions.
  
  What I wonder about is what other regulation will be needed? What expenses will be available for write-off (i.e. will they accept Second Life as a self-employment or will they only accept it as a hobby? The difference is being able to write off the cost of the computer used to play it).
  
  The distinction of Second Life rather than WoW (and many other games) is the expectation that money earned in the game can be removed at some exchange rate; I am not aware of that being possible in WoW (although there are transactions that happen outside the game which affect behavior in the game; those would be impossible to track).
  
  Lastly, if you look at it as gambling winnings (earning money from playing a game) it does make a certain kind of sense.
  [ link to this | view in chronology ]
- J, 12 Nov 2008 @ 6:15pm
  
  Re: Bad Direction
  Are you an idiot. The Australian Government is not a small government - and you only have to look to the EU to see that they are already taxing things in second life by their VAT
  [ link to this | view in chronology ]
Aaron, 2 Nov 2006 @ 12:37pm

Holy cow
I would certainly hope they couldn't tax you until it becomes real money. I'd hate to see my tax bill after not paying my "fair share" of the millions of GP earned in the various Final Fantasy games over the last 15 years.
[ link to this | view in chronology ]
Robert, 2 Nov 2006 @ 12:50pm

Should translate into a writeoff
Since gambling and stocks can be written off, then paying to play the game should become one too if you're loosing money, and since it's the nature of these games to make tons of money (being truly a sink-hole since your money is spent playing and rarely turns profit), then people who sign on to play the game are essentially getting to play for free if they have a good accountant on their side.

p.s. I have never tried second life, so my thoughts on this could be off =
[ link to this | view in chronology ]
- Frank, 3 Nov 2006 @ 4:08am
  
  Re: Should translate into a writeoff
  Since gambling and stocks can be written off...
  I'm not a tax adviser, but consult one before taking this advice. My understanding (subject to being wrong) is that with gambling, you can only deduct your losses against your winnings. If you win $10,000 and lose $50,000, you can only deduct $10K of your $50K loss.
  Similar with stock losses, you can only deduct your losses from your winnings and a very small ($3K?) amount of the losses over that a year (rolling the remaining losses forward).
  One of the reasons that the net did so well in the 90s was that the politicians in the US hadn’t figure out what it was or how to tax it. Once they get an inter-state taxation system going, net commerce will be drastically impacted.
  [ link to this | view in chronology ]
Anonymous Coward, 2 Nov 2006 @ 1:05pm

it makes sense, yeah, that you can't spend virtual money for actual products. it is like the stocks. that's virtual money. you can't use it until it's changed to real money
[ link to this | view in chronology ]
Anonymous Coward, 2 Nov 2006 @ 1:09pm

How does that work for kids
If game playing is going to be taxable, does that mean any kid that plays a video game is in violation of child labor laws?
[ link to this | view in chronology ]
Anonymous Coward, 2 Nov 2006 @ 1:22pm

WoW says that there is no way to "purchase/sell" items from/to WoW, so they can't be held accountable. however ppl will sell "gold and other items, levels" for real world currency. i.e. give me 30 bucks, and i give you 30 gold, i give you 100 bucks, you level me 40 levels. so it's up to the individual to report earnings.

but WoW says itwon't go after ppl doing this, it's just your own risk.
[ link to this | view in chronology ]
Anonymous, 2 Nov 2006 @ 1:45pm

basically like a capital gains tax,

Surely you mean a capital games tax?

;)
[ link to this | view in chronology ]
Brian, 2 Nov 2006 @ 1:47pm

That's the gubmint for you...
"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 Reagan
[ link to this | view in chronology ]
Matt Bennett, 2 Nov 2006 @ 2:53pm

I'm sure the pharse "like an other income" means when it's transfered to real dollars. This is already the case anyway, here and elsewhere. If you sell a WoW sword for $1,000, that's taxable income, just like anything else. That does actually make your subscription a business expensive, but only if you're making taxable income .

Come on now, this is just like anything else and not newsworthy.

I still don't see why the gov gets to tax casino winnings but you can't count losses as an expense. THAT'S bullcrap.
[ link to this | view in chronology ]
Anonymous Coward, 2 Nov 2006 @ 2:57pm

So if they decide to tax in-game money can you pay your entire tax bill with Linden dollars?
[ link to this | view in chronology ]
Stuart, 2 Nov 2006 @ 10:01pm

It makes sense to tax people making money online etc, but the problem is that it's very hard to police. Money can come from so many different sources.....

Stuart
http://www.earnersblog.com
[ link to this | view in chronology ]
Sketchplanet - Art for Everyone, 5 Apr 2008 @ 11:50pm

How come..
How can they chase you up on it?
[ link to this | view in chronology ]
Paul, 29 Jan 2009 @ 7:02pm

sheesh
Taxing maybe when the money becomes real...maybe...

Until then its a joke to even consider it.

Its way too early before taxing becomes a possibiilty.
[ link to this | view in chronology ]
Charles Linden, 29 Mar 2014 @ 4:27am

Taxes
the only thing certain in life is death and taxes
[ link to this | view in chronology ]