For the longest time, the world economies have had centralised finances. Every country had a specific currency supplied and controlled by a governing body, primarily the central bank. Any attempt to create a rivalling currency to the one recognised by the laws of the land would be offensive and lead to jail terms.
The invention of the peer-to-peer digital currency, Bitcoin, revolutionised how currencies operate. It introduced a decentralised currency system without any central authority. Instead, anyone in the network can participate in ensuring security and authorise transactions. The currency also allows anyone with computer processing power to mine the currencies.
While countries are yet to reach a unified consensus, one concern remains: Is Bitcoin legal?
Concerns About Cryptocurrencies
As a new payment system, most countries still struggle to understand Bitcoin. The governments don’t know whether to treat it as an asset, a medium of transfer, or an alternative. Such issues mean the tax authorities, enforcement agencies, and regulators find it hard to streamline regulations around cryptocurrency.
The other Bitcoin concern is its decentralisation. The lack of government involvement limits the protection offered to the crypto exchanges and the people’s funds. While some countries have since enacted Bitcoin regulations, several countries don’t provide any regulation. This restrains government involvement in case of loss of funds and other issues. An example is the Mt.Gox crypto exchange that got hacked in 2014. The exchange had to file for bankruptcy, with investors losing their assets.
The possible use for fraudulent transactions is another Bitcoin concern. While the network records all the transactions on the ledger, it allows for one to transact almost anonymously. The information recorded on the ledger is the public wallet address and the amount involved in the transaction.
Even with the concern, Bitcoin has never slowed. Several countries have accepted it for transactions. Are you thinking, is Bitcoin legal tender? Yes, some countries like El Salvador have approved Bitcoin as a legal tender to work alongside the US dollar.
Countries Where Bitcoin Is Legal
Bitcoin can be used anonymously for transactions among account holders worldwide. This has triggered some worries on the part of governments about the currency. While some politicians and legislators may oppose its usage due to its lack of control and illegal activities involved, many have enacted legislation under their country’s anti-money laundering and counter-financing of terrorism (AML/CFT) laws to limit its use for the illicit acts.
The Library of Congress (LOC) periodically assesses many countries’ stances on Bitcoin and cryptocurrencies. In November 2021, it listed 103 nations whose governments asked their financial regulatory bodies to formulate policies and regulations regarding cryptocurrencies and their usage in AML/CFT.
Additionally, the LOC listed several nations that permit cryptocurrency usage, some of which are listed below.
The United States
Since 2013, the Financial Crimes Enforcement Network (FinCEN) of the United States Department of Treasury has issued interpretive guidance on virtual currencies. The Treasury defines Bitcoin as a “convertible” virtual currency that either has an equivalent value to real currency or can be used in substitution for real currency.
In addition, a money services business is defined as any firm that manages or trades Bitcoin, such as cryptocurrency exchanges and payment processors (MSB). As such, an MSB is governed by the Bank Secrecy Act and is obliged to register with the US Treasury and submit Form 8300 forms on transactions over $10,000, including those involving bitcoin purchases.
FinCEN is currently formulating regulations for financial and non-financial entities to establish national cryptocurrency monitoring and reporting priorities. These regulations will force these institutions—banks and cryptocurrency exchanges—to report particular transactions and suspected activities. This reporting helps investigate potential financial crimes and unlawful activities using cryptocurrencies.
The European Union
Bitcoin and other cryptocurrencies are recognised as crypto-assets by the European Union. While using Bitcoin is not banned in the EU, the European Banking Authority, the union’s currency regulator, has stated that crypto-asset activities are beyond its control and continues to caution the public and companies about the risks associated with cryptocurrencies.
In 2020, the European Commission finalised regulations on crypto-assets, which several institutions within the union have endorsed. The legislation aims to prevent fragmentation of financial regulatory frameworks and level the playing field in the financial sector throughout the EU. The Commission is also committed to guaranteeing that the public has access to and confidence in cryptocurrency.
Canada
Canada, like the United States, maintains a largely pro-bitcoin stance. For income tax reasons, the Canada Revenue Agency (CRA) classifies bitcoin as a commodity. This implies that any money derived from a Bitcoin transaction is either business income or capital gain and must be reported accordingly.
Cryptocurrency exchanges are considered money service businesses in Canada. This puts them in compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada’s AML/CFT legislation). Consequently, crypto exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), report suspicious transactions, adhere to compliance plans and even maintain certain records.
Australia
As with Canada, the Australian Taxation Office views Bitcoin as a financial asset with a value that may be taxed. You are subject to capital gains tax if you trade, swap, sell, convert Bitcoin to fiat currency, or use Bitcoin to make purchases. You must also keep records of all Bitcoin transactions you make for tax reasons.
In some circumstances, if you hold your Bitcoins only for personal use and earn profits on them, you may not owe any taxes in Australia.
El Salvador
On June 9th, 2021, El Salvador’s government released legislation making the digital currency Bitcoin legal tender in the country’s official gazette. The legislation took effect on September 7, 2021, making El Salvador the first nation to allow its citizens to use Bitcoin alongside the US dollar in all purchases.
Other Countries Where Bitcoin Is Legal
Several other nations permit the use of Bitcoin in transactions and have built regulatory frameworks. These countries include Denmark, France, Germany, Iceland, Japan, Mexico, Spain and the United Kingdom.
Countries Where Bitcoin Is Illegal
While Bitcoin is widely accepted in many parts of the globe, numerous nations are concerned about its volatility and decentralised nature. Some also view it as a threat to their existing monetary systems. In contrast, others are worried about its use to facilitate illegal activities such as drug trafficking, money laundering, and terrorism. Several countries have explicitly banned virtual currency, while others have attempted to isolate it from the banking and financial systems.
Countries With Implicit Bans
In its November 2021 update, the Library of Congress found 42 nations that have implicitly prohibited the usage of some cryptocurrencies. They include Bahrain, Burundi, Cameroon, Central African Republic, Gabon, Georgia, Guyana, Kuwait, Lesotho, Libya, Macao, Maldives, Vietnam and Zimbabwe.
Countries With Absolute Bans
In November 2021, the Library of Congress listed nine nations that prohibited cryptocurrencies entirely. These countries are Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia.
The Legal Status of Bitcoin in Australia
Given the fast-spreading use of Bitcoin in Australia, it is alright to ask, Is Bitcoin legal in Australia? Yes, Australia was one of the first countries to embrace cryptocurrencies globally. You can use Bitcoin to buy various products and services both online and offline.
The country has taken a progressive approach in making Bitcoin in Australia legal. The cryptocurrency was declared legal in 2017, thus subjecting to the Anti Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF 2006). At the same time, Bitcoin was removed from previous legislation that subjected it to double taxation under GST. Instead, it was subjected to Capital Gains Tax as it was considered property.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) followed the legalisation by providing a robust regulation blueprint in 2018. The regulations required all crypto exchanges operating in the country to register with AUSTRAC. The exchanges also complied with the AML/CTF provisions of identifying and keeping records of their users.
The Australian Securities and Investments Commission also provided updated regulations on initial Coin Offerings ICO and other crypto activities in 2019. Besides crypto exchanges and trading, Bitcoin mining is legal in Australia. You only have to use your resources like processing power and electricity.
Other than Australia, the next step to consider is which country legal Bitcoin? By legalising Bitcoin in Australia, it is part of several other countries that accept Bitcoin. These countries include the USA, Canada, and the European Union.
ICO Regulations in Australia
Since then, the Australian Securities and Investments Commission (ASIC) has also amended its initial coin offerings (ICOs) regulations.
ICOs are a popular method of fundraising that can be likened to initial public offerings (IPOs) as they both allow investors to buy into the firm. However, while IPOs give shares, ICOs offer crypto tokens.
Regulations governing ICOs are governed by Australian Consumer Law, which prohibits companies from engaging in misleading or deceptive conduct.
Additionally, in August 2020, additional restrictions were enacted requiring exchanges to delist privacy coins, a specific type of anonymous cryptocurrency.
Australia’s Taxation on Cryptocurrency
In Australia, Capital gains tax (CGT) and income tax may apply to cryptocurrency.
In the case of income tax, this applies typically to so-called ‘traders.’ Cryptocurrency traders are individuals or small companies whose primary source of revenue is derived from or is directly tied to cryptocurrency.
CGT applies to any exchanges, professional bitcoin traders, and any other firm that conducts its operations for commercial gain.
Paying CGT on Crypto Profits in Australia
CGT will apply to the bulk of bitcoin investors in Australia who participate in any of the following activities:
- Selling or gifting cryptocurrency
- Converting cryptocurrency to a fiat currency, such as AUD
- Trading or exchanging cryptocurrencies
- Using Bitcoin or other cryptocurrencies to buy goods and services
CGT is not imposed on cryptocurrency investments – which are becoming an increasingly popular tool to diversify portfolios – until the asset is sold or disposed of.
Another area that many Australians often ignore or are unfamiliar with is the use of cryptocurrency exchanges. While you can trade one kind of cryptocurrency for another on exchanges such as Coinspot (you can read our detailed CoinSpot review in Australia to learn more about its features), you are essentially disposing of an asset, so CGT still incurs.
Personal use assets or the assets you keep for your personal use or enjoyment are exempt from CGT. For example, CGT does not apply when you are not using cryptocurrency in the course of business or as an investment.
Future Cryptocurrency Regulations in Australia
Australia adopts a fast-moving approach to cryptocurrency. Source: Investingnews
Late in 2021, Australian Federal Treasurer Josh Frydenberg revealed intentions for broad payment reforms expected to impact the cryptocurrency sector. The plans include creating a new, specialised licencing system for cryptocurrency exchanges in Australia, which would strengthen regulatory protections for trading crypto assets. The regulations will also apply to organisations that retain crypto assets on behalf of their consumers.
In addition to the cryptocurrency licencing system, Australia’s Treasury provided consultation on the Australian central bank digital currency (CBDC) possibility. While the Reserve Bank of Australia has indicated no ‘strong policy case,’ it has started developing an Australian CBDC to stay up with global fintech.
In 2022, besides a dedicated licencing regime, Australia expects to issue a new framework for taxing digital assets, a risk map of existing cryptocurrencies, an examination of the potential integration of Decentralised Autonomous Organisations (DAOs) into Australian financial regulation, and a joint report from the Treasury and the RBA on the feasibility of the proposed CBDC.
Nonetheless, AUSTRAC has cautioned that concerns persist. In January 2022, AUSTRAC chief executive Nicole Rose warned that the agency has not recognised over 400 Australia-based currency exchanges as secure for individual investors. AUSTRAC notes that the existing registration system does not always safeguard consumers and may instil “a false sense of security.”
Australia’s proactive approach to cryptocurrency regulation demonstrates a sustained commitment to establishing a clear operating framework for crypto businesses. However, the persistent risks associated with bitcoin and other digital assets will probably influence AUSTRAC’s future regulation and enforcement – and will almost certainly result in heightened scrutiny and tightening of AML/CFT controls across the board.
