Research reveals that over one million Australians own at least one cryptocurrency, indicating that Aussies are exceedingly crypto-curious. After the recent downfalls of major exchanges, it’s clear that a crypto market that is primarily unregulated and volatile puts consumers at risk and threatens the future of cryptocurrencies.
Unsurprisingly, crypto regulation has been on the agenda for quite some time. But its development could have been more active, as regulators must understand the market and implement regulations without impeding innovation. This article briefly overviews cryptocurrency regulations in Australia and what the government is likely to do next.
Regulations Are Key to Crypto’s Growth in Australia
Cryptocurrencies are generally regarded as investments in Australia. But it’s still unclear whether people who buy crypto assets and non-fungible tokens (NFTs) understand these investments’ risks.
A recent survey by the Australian Securities and Investments Commission (ASIC) found that, after Australian shares, cryptocurrency is the second most common type of asset held in Australia. Only 20% of cryptocurrency proprietors deemed their investment strategy “risky,” raising concerns that investors did not comprehend the hazards associated with this asset class.
There have been numerous high-profile breaches, frauds, and collapses, such as the recent demise of the top crypto exchange FTX, leaving many people out of pocket and diminishing market confidence. Within days, FTX fell apart, and now US regulators are looking into it in more than one way. Administrators are examining the accounts of Australian-registered entities in Australia, with an estimated 30,000 individuals out of pocket.
The value of crypto assets can change a lot based on a single tweet, and investors need more protection if a company goes bankrupt or has a security breach. Cryptocurrencies have also created new and perplexing tax obligations.
Australia’s Current Cryptocurrency Regulations
Historically, the Australian government’s approach to regulating crypto assets has been moderate. Still, because of the recent dramatic events in the crypto space, there have been calls for better digital currency regulations that protect consumers and keep the market’s integrity.
Crypto as an investment
Midway through 2021, when El Salvador became the first nation to recognise Bitcoin as a legal tender, the Australian government swiftly clarified that Australian crypto assets would not be subject to foreign currency tax arrangements.
The government affirmed in its Federal Budget 22-23 that it would enact legislation to tax crypto as an investment asset subject to capital gains tax (CGT). This necessitates that investors be able to monitor each transaction – when they trade, make a purchase, give, or sell crypto – to determine whether they realised a capital gain or loss.
Cryptocurrency exchanges in Australia are legal but must be registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Responsibilities for crypto exchange platforms include:
- Register them as crypto exchanges
- Identify and verify their users
- Maintain financial records
- Follow AML/CTF reporting obligations
AUSTRAC aims to prevent using cryptocurrencies to finance criminal activity or money laundering. However, the provider is responsible for monitoring any suspicious trading activity. Those who do not comply are subject to criminal proceedings and penalties.
Blockchain and DLT
There are no specific regulations regarding blockchain and other Distributed Ledger Technologies (DLT). However, ASIC issued a fact document (INFO 219 Evaluating Distributed Ledger Technology) that delves into potential problems with blockchain technology and DLT solutions. It also requires businesses that want to use DLT to offer financial or consumer credit services on an open market infrastructure to meet specific rules.
The Electronic Transactions Act of 1999 allows self-executing contracts to be set up with different cryptocurrency networks. Contracts are permitted so long as they comply with Australian contract requirements.
Central bank digital currency
Despite global interest in the development of central bank digital currencies (CBDCs), Australia’s central bank, the Reserve Bank of Australia, has not indicated any immediate intentions to issue a centralised digital currency. CBDCs could become a new digital currency that the central bank would back. They would be the digital cash equivalent and widely accepted through smart cards and smartphone wallets.
However, the Reserve Bank of Australia has anticipated that there is no compelling policy case and adopted a more sceptical stance toward a genuine use case for a retail CBDC – a digital central bank liability made available to the public for retail payments. The main reason for this position is that Australia already has a good electronic payment system that gives retailers and businesses various safe, easy, and cheap ways to accept payments.
Is It Required to Pay Tax on Crypto in Australia?
The Australian Taxation Office (ATO) regulates crypto taxation in Australia and views cryptocurrency as an asset. For tax purposes, crypto assets are deemed property and are subject to capital gains tax. The capital gains tax may be waived if the cryptocurrency is held for at least a year before being sold.
Crypto sale and exchange
The sale or exchange of cryptocurrencies and other digital assets in Australia is governed by the rules already in place for financial services. If transferring or trading cryptocurrency is a regular part of a holder’s business, the digital asset will be treated like trading stocks.
In a business like trading or mining, for example, profits from the sale of cryptocurrency can be calculated, while losses can be deductible.
Staking tokens and receiving staking rewards is a taxable event. It’s regarded as a disposal of a digital asset, and any gain is subject to Capital Gains Tax. You will use the fair market value of your staking rewards when you receive them as your cost basis.
Goods and services tax (GST)
Since July 2017, people who sell or buy digital currency don’t have to pay goods and services tax (GST) as long as they buy or sell financial services that have already been taxed. Input-taxed transactions exclude GST from the price, and GST credits cannot be claimed for the GST included in the price of “inputs.”
However, because digital currency can be used as a payment method, the usual GST rules apply to the payment or receipt of digital currency for commodities or services.
A cryptocurrency miner must register for GST if their annual GST turnover exceeds $75,000 AUS. However, a miner who does not meet this GST threshold may still register for GST to claim input tax deductions from the ATO for the GST cost of its business acquisitions.
Enforcement of crypto tax evasion
The ATO has formed a specialised task force to combat tax evasion involving cryptocurrencies. The tax office requires Australian cryptocurrency exchanges and service providers to keep and provide customer records. The goal is to match the data and ensure cryptocurrency traders and investors pay the right taxes.
Future Plans for Digital Assets Regulations in Australia
In August 2022, the Australian government said it would do everything it needed to start a series of consultations with industry participants, investors, and other stakeholders to start writing rules for the cryptocurrency industry.
As it regulates the crypto industry, Australia will have to deal with a relatively new market, try to understand it, and put in place crypto restrictions without stifling innovation.
The main thing the Australian government is doing to set up a framework for regulating crypto in Australia is a “world-first” exercise called “token mapping.” As crypto tokens and NFTs have various applications, token mapping involves categorising digital assets to determine how they must be regulated.
The Australian government plans to make rules about custody and exchange to protect customers in situations like the collapse of the FTX cryptocurrency exchange, which caused users to lose money. The ASIC also expects that best practices will be set up for how their owners should keep crypto assets and that risk management systems will be implemented.
To show how important it is to protect customer funds, the government has promised to implement exchange rules and custody arrangements by 2023. In particular, the law will require registered exchanges to use “Know Your Customer” (KYC) procedures to identify and verify customers, follow annual reporting requirements and watch for and report suspicious transactions involving large amounts of money.
Australia’s Crypto Regulations FAQs
Is cryptocurrency legal in Australia?
Bitcoin (BTC) and other cryptocurrencies are legal and treated as property in Australia. Cryptocurrencies can be traded, spent, received, and stored, but stores are not required to accept them as payment for personal or business transactions. In Australia, blockchain and cryptocurrencies have benefited from neutral and stable market incentives, fostering technological innovation in payments, crypto assets, lending, investment, and custody services.
How is crypto regulated in Australia?
Historically, the Australian government has taken a moderate approach to crypto asset regulation. In light of the recent dramatic events in the crypto space, however, there have been demands for a more effective regulation of digital currencies that prioritises consumer protection and market integrity.
Even though the local government does not see cryptocurrencies as a separate area of law, they can still be regulated under Australian law.
What’s next for crypto regulations in Australia?
Specific cryptocurrency legislative proposals have already been submitted to Congress. On September 19, 2022, Senator Andrew Bragg proposed the Digital Assets Bill 2022 with new regulations for digital asset exchanges, stablecoins, and digital asset custody services. The Bill expressly targets “digital yuan,” a cryptocurrency pegged to the Chinese Yuan and managed by the People’s Bank of China. While the current Labor Government is unlikely to pass this Bill, Senator Bragg’s efforts may influence the regulations that are ultimately adopted.
Despite the volatility of cryptocurrency markets, blockchain is still viewed as a revolutionary technology. Australia seeks to safeguard consumers of blockchain-based assets and services while obtaining a competitive advantage.
Businesses and consumers in Australia can expect crypto to be regulated soon. Even though it is unlikely that Senator Bragg’s bill will be passed in its current form, it results from much consultation with crypto stakeholders in Australia and could be used to regulate crypto assets.