Note: I’m sure there will be more changes and updates from ATO and AUSTRAC in 2018, so I will keep this post updated with the most up-to-date information.
In today’s digital age, what seemed to be too futuristic ten years ago is now made possible. This applies to the concept of cryptocurrency. Who would have thought that assets could also be acquired, kept, and transferred digitally?
Bitcoin has been the game changer because it’s the first decentralized cryptocurrency. And while it continues to grow and transform financial markets, legislators are now left wondering: Is bitcoin legal?
Before you join the bandwagon, read on and review the risks you might have to take.
On Legal Issues
Australia is one of the initial players in the field and many of its people continue to join the controversial surge. Consequently, the country has taken the initial steps in strengthening their anti-money laundering laws.
AUSTRAC, a financial intelligence regulator, is now given the power to regulate all cryptocurrency exchanges within Australia. This means Bitcoin and all other digital currencies have to sign up on a specified currency register.
However, even with the new laws, legality is still questionable in some ways. It is a currency that isn’t printed out and is essentially floating. Practically speaking, it can be counted as anonymous. So, it all boils down to how the currencies are used.
Bitcoin’s legality has been questioned multiple times since it boomed. There were even controversies in the past that involved illegal purchasing activity. Some people used it to pay for illegal products online.
And then there is bitcoin mining. Mining means managing the currency by verifying and compiling all its transactions with the use of a block chain. This process is also questionable for some regulators as it can be a venue for illegal trading and exchanging.
Still, money laundering concerns don’t end because the governing laws differ from one country and state to another.
On Fears and Safety Issues
As the bitcoin market constantly changes directions, more risky concepts arise. People who are new to the idea ask, “Are bitcoins safe?” “Are there any laws that support counter terrorism in terms of financing? “Does bitcoin abide by the general rules on tax?”
Perpetrators always find a way to ruin a shared system especially when it involves assets. Take hackers as an example. Cryptocurrency may not be exempted from such a nuisance.
With bitcoin, there is always a possibility for terrorist acts to thrive. Terrorists can do illegal transactions by moving funds from one country to another. This is why regulation is being held in several countries today.
For instance, AUSTRAC reported that cryptocurrency is being used for money laundering by organised crime groups. Moreover, Australia’s financial intelligence agency warned that paramilitary groups are using cryptocurrency donations to purchase weapons. When paired with social media, cryptocurrency as a fundraising source has gained an even bigger reach.
The UK and the USA propose to regulate all bitcoin transactions that are currently running. They want everything reported in detail and block any anonymous activity. This plan has been carried out since 2017 and is expected to remain in place this 2018, even when the value of bitcoin slides down.
And what about taxes? In the US, when bitcoin assets are used to purchase goods in the local markets, the equivalent capital gains tax is being charged. Other transactions within the bitcoin scheme, such as selling bitcoins to a third party, will also incur taxes. So generally, taxes are being monitored while the bitcoin players count huge profits
In Australia, the ATO or Australian Taxation Office thinks that cryptocurrency in general cannot be considered as a real currency. However, the necessary laws have to be applied to prevent any illegal and unsafe activity.
So, is bitcoin legal? Based on the laws that govern the top-playing countries, there is not enough evidence to call it illegal.
Bitcoin is a largely different paradigm that created its own niche in the global market. It has shifted and changed how people buy, sell, invest, and withdraw assets. And you can only predict the next big thing that’s going to happen to it.
On Crypto Assets
Before we can answer the question “Is bitcoin legal in Australia?”, we still need to look at several critical components, particularly regulations concerning crypto assets.
Australia doesn’t yet have specific laws on crypto assets and other digital assets. However, that’s about to change in 2023, with the Australian Government being set to introduce legislation to improve crypto regulatory frameworks.
With the current regulatory landscape, businesses involved in cryptocurrency are required to comply with regulations such as:
· The anti-money laundering and counter-terrorism financing (AML/CTF) regulations to curtail the use of crypto assets in criminal or illegal activities
· Crypto assets used as an investment product or exchange-traded product are required to have an Australian Financial Services License (AFSL) under the Corporations Act 2001
· Electronic transactions regulation following the Electronic Transactions Act 1999
On September 2022, Senator Andrew Bragg released a draft of a private member’s bill called Digital Assets (Market Regulation) Bill 2022. The bill proposes the following:
· Licensing and requirements for digital asset exchange
· Licensing and requirements for digital asset custody
· Licensing and requirements for stablecoin issuance
· Disclosure requirements for digital currency facilitators in the country
2023 saw a new Digital Assets (Market Regulation) Act, which aims to change the country’s digital asset through the implementation of a robust regulatory framework for cryptocurrencies, stable coins and central bank digital currencies. The new bill also aims to strengthen consumer protection, as well as bolster the promotion of digital investments and make the Australian crypto industry more efficient.
In general, cryptocurrency is legal in Australia. However, crypto assets and crypto investments are largely unregulated. That’s because they’re not technically considered as financial products. In fact, many cryptocurrency exchanges for buying and selling crypto assets may not be regulated by the Australian Securities and Investments Commission (ASIC).
It’s worth noting that the ASIC is working towards regulating crypto assets using its regulatory framework. In fact, in 2022, the Australian Securities and Investments Commission made interim stop orders against three cryptocurrency investment funds for non-compliance in target market denominations. Additionally, that same year, the ASIC sued BPS Financial for issuing misleading representations and engaging in unlicensed conduct in relation to a crypto asset token known as Qoin.
Despite crypto assets being highly volatile and unregulated, 47% of Australians are planning to invest in crypto assets in 2023, according to a CFOtech Australia report..
One of the main reasons for this interest in crypto investments is that they’re relatively accessible. Anyone can invest in crypto assets. However, not everyone who invests in cryptocurrency (including Bitcoin) has a good understanding of these digital assets, how they work and how the crypto market works. This could mean that many Australian crypto investors may not be equipped to make sound financial decisions.
Another reason for the keen interest in investing in crypto assets is the potential long-term benefits they may offer. 80% of investors are, in fact, looking to diversify their investment portfolio, according to the same report. Another 66% of Aussies want to save up for future investments, while 77% of investors want to start investing in crypto because of the rising cost of living.
On Capital Gains Tax
Bitcoin is the most popular digital currency in Australia, but is it legal?
In a nutshell, bitcoin is legal in Australia, but it’s still largely unregulated. But is bitcoin considered legal tender in Australia? Currently, bitcoin isn’t counted as legal tender in Australia, as it’s not yet recognised by the country’s legal system as something like a physical currency that can be used to pay financial obligations, including taxes. Yes, you can use bitcoin for daily transactions, but you can’t use it to pay taxes.
You can use bitcoin to pay for personal or business transactions. However, if treated as an investment, bitcoin is subject to Capital Gains Tax for tax purposes. The good news is, if you’re using bitcoin for day-to-day transactions, then it’s exempt from Capital Gains Tax. That’s because the Australian Taxation Office (ATO) identifies cryptocurrencies like bitcoin and other crypto assets as property and not physical currency and is thus subject to Capital Gains Tax. Note that your crypto may be considered as additional income and can thus be subjected to Income Tax.
Capital Gains Tax events, which takes place when you dispose of a CGT asset, to take note of when working with cryptocurrencies like bitcoin include:
· Selling, gifting, or trading a crypto asset
· Converting your crypto asset to fiat currency
· Purchasing goods or services using a crypto asset
Note that holding crypto assets as an investment won’t make it exempt from Capital Gains Tax. You also have to declare your crypto asset even if it’s worth less than $10,000. To learn more about how you can work out and report your CGT for transactions involving crypto assets, the ATO has some helpful information here.
There are a other things to keep in mind when discussing CGT on crypto assets:
· You can deduct your losses from your capital gains
· You may be entitled to a 50% discount on your Capital Gains Tax if you hold your crypto for more than one year (12 months) prior to selling or trading it
· Other methods that might help reduce your obligations for tax purposes include donating your crypto to a charitable institution, receiving cryptocurrencies as a gift and deducting expenses incurred when mining crypto.
On the Australian Consumer Law
While it’s relatively safe to purchase bitcoin in Australia, it’s always best to buy your digital currencies from Australian regulated cryptocurrency exchanges. Additionally, choosing a secure digital wallet helps you securely store your crypto asset.
Cryptocurrencies and cryptocurrency exchanges were made legal in 2017. In 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) started to regulate Australian cryptocurrency exchanges. This proved to be a vital move in ensuring that these cryptocurrency exchanges complied with the Australian AML-CTF laws. In addition to being regulated, each crypto asset exchange is required to take measures to protect users, including registering as an exchange, maintaining financial records and verifying its users.
In addition to regulating cryptocurrency exchanges, Australian crypto laws also factored in AML-CTF laws. That’s because transferring value in digital currencies often involved procedures that make them prone to illegal activities. Thus, digital currencies were included in the AML-CTF regime under the Financing Act 2006.
We’ve already established that bitcoin and other cryptocurrencies are highly volatile. They’re considered as high-risk investments because their market value fluctuates, they’re not immune to hackers who could steal your crypto assets from your digital wallet, crypto scams are becoming more prevalent, and crypto assets are very complex and may be difficult to understand.
Given the risks involved, laws are put in place to protect Australian consumers. One such law is the Australian Consumer Law, which has prohibitions in place for crypto assets and initial coin offerings that aren’t considered as financial products to protect consumers against misleading or deceptive conduct, which may include:
· Not disclosing adequate information about the initial coin offering or crypto asset
· Giving the impression that the crypto asset or initial coin offering is a financial product when it’s not
· Suggesting that the initial coin offering or crypto asset is a regulated product or has been approved by a regulator when it’s not
When it comes to initial coin offerings, the ASIC has updated regulations around them. They’re subjected to the Australian Consumer Law, which ensures that companies issuing ICOs don’t engage in any misleading or deceptive conduct.
Aside from the Australian Consumer Law, cryptocurrency exchanges must have an Australian Financial Services licence (AFS). With this licence, exchanges are treated the same way as other Australian financial service providers.
With all the developments concerning regulations on cryptocurrencies, it looks like 2023 will be a good year for Australian consumers. The new government is looking towards bolstering consumer protection, curtailing misleading or deceptive conduct and nurturing true innovation. According to a joint release by the Hon. Stephen Jones MP and the Hon. Jim Chalmers MP, the Albanese Government is looking to implement a multi-stage approach that has three elements:
· Bolstering law enforcement
· Strengthening consumer protection
· Building a framework to promote reform
Bolstering Law Enforcement
The first element focuses on crypto asset providers to ensure that they meet their obligations towards Aussie consumers. For instance, the Australian Securities and Investments Commission is stepping up efforts to ensure that risks are fully disclosed to consumers. Additionally, the Australian Competition and Consumer Commission (ACCC) is bolstering its efforts to curtail scams. According to a 2022 ACCC report, losses made through crypto scams amounted to a total of $221 million, indicating a 162% increase compared to the previous year.
Strengthening consumer protection
Consultation for designing a custody and licensing framework is slated to begin in mid-2023. This follows the new government’s endeavour to reform the licencing and custody of crypto assets. It aims to establish a set of obligations and operational standards for service providers to further strengthen consumer protection.
Building a framework to promote reform
The Albanese government will work towards understanding, identifying and mitigating the risks involved in using cryptocurrencies, as well as identifying regulatory gaps.