Cryptocurrency Regulations are on its way

Australia has generally been regarded as a relatively friendly and stable jurisdiction for blockchain and cryptocurrency businesses to operate in. This has been driven in part by Australia’s overall approach to the financial technology (fintech) sector, with the Commonwealth Government of Australia (Government) supportive of broad growth and innovation.

There has been a proliferation of product offerings from the Australian blockchain and cryptocurrency community, and the Australian approach to the sector has broadly remained supportive of new and innovative financial services and products using or transacting cryptocurrencies.  In part, the expansion of the sector in Australia has been led by businesses in the payments, crypto asset, lending, investment and custodial services spaces.

In October, an official from the Reserve Bank of Australia said that there is no strong case for a central bank digital currency in Australia, but that the central bank was ramping up its development to stay ahead of global competition.

To date, the Government has taken a largely non-interventionist approach to the regulation of cryptocurrency, allowing the landscape to evolve at a faster rate without significant regulatory limitation but major changes are on the way.

The Australian government is making moves to take Bitcoin “out from the shadows” by imposing new regulations on cryptocurrencies, while busy planning to launch its own digital currency. Treasurer Josh Frydenberg confirmed the Commonwealth and Reserve Bank were now working on the feasibility of a central cryptocurrency in Australia.

Speaking on Today, Mr Frydenberg said it was time for cryptocurrencies to operate under the umbrella of a “considered regulatory framework”.

The government wanted cryptocurrency exchanges and businesses to apply for financial licences, Mr Frydenberg said, to “give consumers a little bit more certainty and confidence about the parties that they’re dealing with.”

More than 800,000 Australians have owned cryptocurrency at least once,since the rise of digital currencies over the past decade.  Criminal enterprises have been drawn to Bitcoin, because of its anonymity.

Proposed new regulations

In an attempt to bring rules for Australia’s payment systems up to date, the new regulations will “broaden the definition of services and products that can be regulated,” taking cryptocurrencies and digital assets “out of the shadows” and into a “world-leading” regulatory framework, Frydenberg said in an interview with 7NEWS Australia on Wednesday.

Firms that buy and sell cryptocurrencies will have to be licensed to bring safety and security to users, the treasurer said. The government will also work out a licensing plan for crypto exchanges next year, the Australian Financial Review reported.

While the Government has not significantly intervened in cryptocurrencies and related activities, there has been general clarification of the application of Australian regulatory regimes to the sector.  For example, since 2018, digital currencies have been caught by Australia’s anti-money laundering and counter-terrorism financing (AML/CTF) regime.

As well as in payments, there has been a growing expectation that crypto assets (including cryptocurrencies) will become accepted as an investment asset class. In June 2021, Australia’s primary corporate, markets, consumer credit and financial services regulator, the Australian Securities and Investments Commission (ASIC), launched a consultation process on its proposals to clarify expectations for crypto assets that form part of the underlying assets of exchange-traded products (ETPs) and other investment products.

Australian goods and services tax (GST)

Supplies and acquisitions of digital currency made from 1 July 2017 are not subject to GST on the basis that they will be input-taxed financial supplies.  Consequently, suppliers of digital currency will not be required to charge GST on these supplies, and a purchaser would prima facie not be entitled to GST refunds (i.e., input tax credits) for these corresponding acquisitions.On the basis that digital currency is a method of payment, as an alternative to money, the normal GST rules apply to the payment or receipt of digital currency for goods and services.

Enforcement

The ATO has created a specialist task force to tackle cryptocurrency tax evasion.  The ATO also collects bulk records from Australian cryptocurrency designated service providers to conduct data matching to ensure that cryptocurrency users are paying the right amount of tax.  With the broader regulatory trend around the globe moving from guidance to enforcement, it is likely that the ATO will also begin enforcing tax liabilities more aggressively.

 

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