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Summary:

Kermitt Quirk, consult your accountant quick! Online world entrepeneurs and gold farmers dodged the tax bullet only a couple weeks ago, when an American policymaker announced there’d be no taxing of income earned by activity in virtual worlds and MMOs. (At least any time soon.) Turns […]

Kermitt Quirk, consult your accountant quick!

Online world entrepeneurs and gold farmers dodged the tax bullet only a couple weeks ago, when an American policymaker announced there’d be no taxing of income earned by activity in virtual worlds and MMOs. (At least any time soon.) Turns out their sighs of relief were premature, because the Australian Tax Office just laid down the law to its own country’s citizens: “If you are getting a monetary benefit then it’s not treated any differently– normal rules apply.” The ATO spokesperson even went so far to single out Second Life’s official currency by name. “The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars.”


(Stop a moment and take in the full strangeness of that statement: a government official from a leading G20 nation just declared they have a taxation policy on a currency that only exists in a virtual world inhabited by subscribers from around the globe.)

Anyway, this is where Kermitt comes in, because the green-haired lizard is the Second Life avatar of Nathan Keir, a New Zealand programmer now living in Australia– which is where he created Tringo, a Tetris-meets-Bingo mini-game in SL that became so popular there, it soon dominated the culture. (Nice YouTube video of Keir demonstrating Tringo here.) It became so popular that he sold the non-SL rights to an American media company, which then went on to convert Tringo into a Gameboy Advance title. (SL subscribers retain the IP rights to their in-world creations.) There’s even talk of Tringo, the game that began in a virtual world, being turned into a TV show.

Of course, the last two spin-offs involve deals with real world companies and exchanges of actual money. The real question is what will Australian-based Second Life players like him do, now that they’re on the Ozzie taxman’s radar?

By Keir’s own estimate, he’s sold about 300 copies of Tringo for the L$ equivalent of $50– meaning a windfall of $15,000 that he’ll somehow have to figure out how to itemize on his next tax return. He’s not the only one: according to a recent article, at least 3,000 Second Life subscribers are making over $20,000 a year from their in-world activities; my educated estimate is that 5% of those earners are from Australia, which would mean 150 very confused people down under during tax time.

What happens then is anyone’s guess, but you have to think the tax boards of other developed nations will be watching what happens in Australia, and taking notes. It may actually be a boon to the economic growth of virtual worlds, to confer governmental legitimacy on their internal activity. Then again, it’ll also be a headache for the private companies that own these worlds, because when the first audit of a virtual world millionaire happens, it’ll be their server records that’ll get subpoenaed.

  1. Second Life, First World Economics and the Third Degree…

    Dastardly Dealings in 2nd Life – our man Dark Harlequin reports:.

    Back in May real life contract law started to impact 2nd Life (see Wired article for example) as sharp practitioners and sharp practices (allegedly) moved in.

    However, seems like …

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  2. Taxing virtual activities doesn’t seem so strange to me – if you can convert Linden$ to real money, then it’s real income. The fact that the transaction is conducted via a computer program doesn’t make a difference, any more than if you sold something on e-Bay.

    That doesn’t mean I think it’s a good idea that our governments can find new ways to take a share of our money!

    I think the only reason the US govt is not planning to do it is that they think the amount is currently small, so it is more trouble than it is worth to attempt to collect it.

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  3. On line gaming taxed…

    The US was looking into it, but Australia has decided – tax stuff done on-line. If there is a monetary benefit. I guess a whole load of tax boards are going to be looking at Australia to see if it can actually be done…

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  4. In any country (like Australia, where I live), that has an income tax, earnings derived from 2nd Life or any other online enterprise should be taxed the same as anything else; Thats just common sense.

    Because we have an income tax here, I have often wondered why there is even a debate about taxing online ventures. Income is income, after all.

    Is the US Tax model so different? Sounds like it is.

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  5. I think the big issue here is that the Australian government as actually specifying that virtual assets are no different than real world assets. This seems to set a precedent for issues like division of property at divorce. It is also seems to increase the liability of the companies run the game as if they were to shut down their servers they would some how have to compensate the players for the loss of assets.

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  6. Australia to Second Life users: we will tax you…

    You know a technology has hit mainstream when it’s mentioned by members of government, traditionally the very last people to ever get on a new technology bandwagon. For Australian Massively Multiplayer Role-Players, this is a mixed blessing, not …

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  7. umm.. let’s not get carried away here Hamlet :)

    the original statement:
    from:
    http://www.theage.com.au/news/biztech/virtual-world-tax-man-cometh/2006/10/30/1162056925483.html

    “The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars,”

    doesn’t in my view naturally (or even comfortably) lead to your statement:
    (Stop a moment and take in the full strangeness of that statement: a government official from a leading G20 nation just declared they have a taxation policy on a currency that only exists in a virtual world inhabited by subscribers from around the globe.)

    Quite the opposite.. the spokeswoman is making it perfectly clear that the ATO are interested when the ‘real world value’ shows up.

    The passing reference to L$ is almost irrelevant and it’s certainly a ‘very long stretch’ to suggest that the Australian Government has some how made a statement that they have a policy (or any interest for that matter) in any ‘in-world’ virtual currency..

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  8. Jesse Kopelman Friday, November 3, 2006

    Shaun, if someone says they are going to tax the real world value of your virtual assets, then clearly they have an interest in how those assets are valued. The stretch here is actually very short.

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  9. Jesse, as Shaun stated, problem is that real world value doesn’t materialize until the virtual money is converted back into real-world currency…

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  10. [...] While in the US the IRS hasn’t declared that any income you earn in the game Second Life is taxable, the Australian counterpart says it is. Online world entrepeneurs and gold farmers dodged the tax bullet only a couple weeks ago, when an American policymaker announced there’d be no taxing of income earned by activity in virtual worlds and MMOs. (At least any time soon.) Turns out their sighs of relief were premature, because the Australian Tax Office just laid down the law to its own country’s citizens : “If you are getting a monetary benefit then it’s not treated any differently– normal rules apply.” The ATO spokesperson even went so far to single out Second Life’s official currency by name. “The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars.” [Full Article]  [...]

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