The virtual world taxman arriveth… in Oz

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.