Legalization of cryptocurrencies in Australia: freedom or restriction?

Cryptocurrency in Australia is officially legalized after the Australian Taxation Office voiced its dissatisfaction that the budget is being bypassed by tax revenues from transactions with bitcoin.

At first, Australia treated bitcoin as a commodity, and transactions with it as barter, and were subject to Goods and Services Tax (GST). Under the current law, established in December 2014, Australians were taxed twice on cryptocurrency transactions - once when purchasing cryptocurrency used in a transaction, and once for Goods and Services Tax (GST) when using it as a means of payment. Digital currencies were treated as "intangible" property under the rules set by the Australian Taxation Office.

This double taxation has been criticized many times, and since 2016 the Australian government has promised to address the issue.

During 2017, a number of bills and amendments to existing legislation were passed that put an end to the double taxation of digital currencies. Now both bitcoin and other cryptocurrencies are considered “foreign currency”.  

With the amendments to the Act coming into force, digital currency transactions are no longer subject to Goods and Services Tax (GST), but they are still subject to income and capital gains taxes, and all income from cryptocurrency transactions must be included in tax returns.

If you simply pay for goods or services in bitcoin, there is no income tax or GST impact, provided that the total purchase price does not exceed 10 000 US dollars.

Only the market for international transfers may suffer significantly. Australia has a list of restrictions on countries and territories for sending money. Legalization makes it impossible to anonymize transfers and ignore this list.

Operations for purchasing or selling things on the Internet are not of great interest to the tax authorities.

Crypto exchanges have been subject to regulation since July 2018, with mandatory registration in the Digital Exchange Register. Their activities will be monitored by the Transaction Reporting and Analysis Center (AUSTRAC), Australia's main financial intelligence agency. This will make cryptocurrency platforms subject to the same reporting obligations and regulatory requirements as large banks.

Breaking the law not only risks fines ranging from $100,000 to $400,000.., but also imprisonment from 2 to 7 years, depending on the severity of the violation. Moreover, such sanctions are provided not only for providers operating without licenses, but also for their clients.

Providing the requested identification information to special authorities is also a mandatory condition for the work of cryptocurrency operators. Bitcoin machine operators, of which there are no more than 20 in Australia, fear that this will lead to a shutdown of their business because they cannot provide what is required.

Laws passed last year to eliminate double taxation, as well as an amendment to the Anti-Money Laundering and Counter-Terrorism Financing Act, have given Australia the opportunity to make the process of legalizing cryptocurrency more beneficial for the government than for users. Because for the owners of crypto assets, new legislative initiatives impose restrictions and lead to total control, and for the state, a new source of profit is created and the ability to control the entire industry.

A framework is now being developed so that investors and traders do not evade their tax responsibilities.

A series of external consultations and seminars are being conducted with technology experts, lawyers, banking and finance specialists to inform and support the community in understanding their tax obligations.

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