May 6, 2022

Changes coming for cryptocurrency and digital assets

It is estimated that more than 800,000 Australians participated in the crypto/digital assets market in the last 3 years. According to the ATO, 2021 saw a jump in participants of 63% compared with the 2020 year. However, this surge in participation and the associated losses from financial scams have amplified calls for regulation.

To placate the various voices calling for increased regulation of the digital assets space, and only a month out from the Federal election, the government has recently released the terms of reference for a review by the Board of Taxation into the appropriate policy framework for the taxation of digital transactions and assets such as cryptocurrency in Australia.

“The Morrison Government is… progressing to the next stage of the most significant reforms to Australia’s payment systems in more than 25 years, ensuring Australia can capitalise on the significant opportunities being created by new payment and crypto technologies.” – The Hon Josh Frydenberg, Treasurer.

The Board of Taxation has been tasked with consulting with taxpayers, tax representative bodies, industry stakeholders and academics on the implications of various digital assets and transactions, without increasing the overall tax burden.

Specifically, the Board will consult on: the current Australian taxation treatment of digital assets and transactions and emerging tax policy issues; the awareness of the taxation treatment by both retail and wholesale investors and those transacting in digital assets as part of their business; the characteristics and features of digital assets and transactions in the market, including the rapid evolution of technology supporting the broader digital asset ecosystem; analyse the taxation of digital assets and transactions in comparative jurisdictions and consider how international experience may inform the taxation of digital assets and transactions in Australia; and consider whether or not any changes to Australia’s taxation laws and/or their administration are warranted in the context of digital assets and transactions, both for retail and wholesale investors.

It is expected that the review will be completed by 31 December 2022. At the same time, the government has also released terms of reference covering its request for advice from the Council of Financial Regulators (CFR) on potential policy responses to address the issue of de-banking for financial technology firms, digital currency exchanges and remittance providers. It is expected that the CFR will provide the advice to the government by June 2022.

In conjunction with the release of the terms of reference for the review and advice, government has also reminded interested parties that a consultation paper is currently active until May 2022 on licensing and custody requirements for crypto asset secondary service providers.

Under the terms of the consultation paper, secondary service providers include any natural or legal person, who, as a business conducts exchanges (eg between crypto assets and currencies or one or more forms of crypto), transfers and safekeeping/administration, among other things. It is proposed that a tailored licensing framework would apply to all secondary service providers, but not to decentralised platforms of protocols.

Speak to one of our accountants today if you have any questions or need assistance with  cryptocurrency and digital assets.