This article elaborates on the basic situation and development trend of Australia's cryptocurrency tax, including three parts: an explanation of Australia's general tax system, an analysis of cryptocurrency tax, and an analysis and outlook on the latest Australian digital asset regulation "Regulation of Digital Asset Platforms."

1 Major Tax Categories and Tax Rates in Australia

1.1 Overview of Australia's General Tax System

Australia is a federal country, and after long-term evolution and development, a sound and scientific tax system has been established in Australia. In addition, the unique tax management system and a rigorous and effective tax audit mechanism have effectively ensured the smooth implementation of the tax system.

Australia implements a dual tax system, with tax collection mainly concentrated in the Australian Taxation Office. Its fiscal and jurisdictional powers correspond, that is, the federal, state, and local governments each have the right to levy exclusive taxes and fulfill related obligations according to the powers stipulated in the constitution and laws. Its tax revenue, like other dual tax countries, is divided into central tax revenue and local tax revenue. Direct taxes are the main tax types in this country, and personal income tax is the most important, accounting for about 60% of the total federal tax revenue. The tax year for Australia is from July 1 of the previous year to June 30 of the current year (fiscal year).

1.2 Personal Income Tax

Australian resident individuals are required to pay personal income tax on their taxable income worldwide, including net capital gains. Taxable income mainly includes ordinary income (such as income from business activities, wages, interest, or royalties) and statutory income (such as net capital gains). Income should be included in the taxable income for the tax year when it is obtained, and most taxpayers calculate their taxable income on a cash basis. Tax-exempt income includes retirement and social security pensions paid by the Australian government, employee fringe benefits, scholarships, personal injury compensation, and in some cases, overseas employment income. Expenses related to tax-exempt income incurred during the tax year cannot be deducted before tax.

Non-resident individuals only need to pay personal income tax on income derived from within Australia or deemed to be derived from within Australia (e.g., capital gains derived from Australian taxable assets). Beneficiaries of trust income in Australia are subject to taxation.

Australia implements a comprehensive tax system for personal income tax, and all types of income are combined and subject to a tax rate table. For the 2022-2023 fiscal year, the personal income tax rates applicable to Australian resident taxpayers are as follows: 0% for income up to $18,200, 19% for income between $18,201 and $45,000, 32.5% for income between $45,001 and $120,000, 37% for income between $120,001 and $180,000, and 45% for income over $180,000.

1.3 Corporate Income Tax

Corporate income tax in Australia applies to companies, limited partnerships, and certain trust businesses (corporate unit trusts and public trading trusts).

Australian resident companies, which are companies registered and established in Australia, are required to declare corporate income tax on their worldwide taxable income, including net capital gains, in accordance with regulations. Non-resident companies in Australia only need to pay income tax on income derived from within Australia. If there are dividends, they should not exceed 15% of the total dividends; if there is interest, it should not exceed 10% of the total interest; if it is a royalty, it should not exceed 10% of the total royalty.

The corporate income tax rate is uniformly 30%. For the 2021/2022 fiscal year and subsequent years, small businesses with annual turnover not exceeding AUD 50 million are subject to a 25% reduction in corporate income tax.

1.4 Goods and Services Tax

Taxpayers who have registered or should register for Goods and Services Tax (GST) in Australia are those who sell taxable goods or provide taxable services within the country, or import goods and services. Businesses with annual turnover exceeding AUD 75,000 (non-profit organizations AUD 150,000) are required to register for GST. All taxi operators, regardless of their annual turnover, must register. Taxpayers are required to pay GST on taxable goods and services sold or imported within Australia. The GST rate is 10%, except for some zero-rated goods or services.

1.5 Capital Gains Tax

Capital gains income in Australia is subject to normal corporate income tax and personal income tax. Capital Gains Tax (CGT) is a tax levied on profits obtained from the sale of assets. If a taxpayer realizes a capital gain (profit) when selling an asset, it will be included in the taxpayer's overall tax obligation. This tax is included in the income tax return, which is submitted after the end of the Australian fiscal year on June 30. If a taxpayer sells a capital asset, such as real estate or stocks, they must report any profit or loss generated from the sale in their ongoing income tax return to avoid penalties. Although capital gains tax has a separate name, it is part of the income tax. Australian tax residents are obligated to report capital gains and losses in their tax returns and subsequently fulfill related tax obligations. In many cases, taxpayers can also receive a discount on the capital gains tax payable. When a taxpayer disposes of an asset and has owned it for at least 12 months and is an Australian tax resident, they can reduce the capital gains tax payable by 50%. This is called the "capital gains tax discount." This means that the taxpayer only needs to pay half of the capital gains tax on the sales profit. In addition to the discount, some capital gains tax can be completely exempt. The main residence is exempt from capital gains tax. If an individual purchases a property and resides in it from the date of purchase, and sells it during the period of residence, regardless of the amount of capital gain, the amount is exempt from capital gains tax.

In addition to the federal taxes mentioned above, local taxes in Australia mainly include stamp duty, land tax, payroll tax, etc. Land Tax is a tax collected by the Australian government at the end of each calendar year based on the value of the land held. In Australia, land tax is collected by individual state governments. The land tax policies of different states vary, but are generally similar.

2 Australian Cryptocurrency Tax System

2.1 Government's Definition of Cryptocurrency Assets

The Australian Taxation Office (ATO) defines cryptocurrency assets as follows: Cryptocurrency is a digital representation of value that can be transferred, stored, or traded electronically. Cryptocurrency is a subset of digital assets that uses encryption technology to protect digital data and distributed ledger technology to record transactions. They can operate on their own blockchain or use an existing platform. Transactions involving cryptocurrency must comply with the same tax rules as general assets. The tax treatment will depend on how the taxpayer acquires, holds, and disposes of the assets.

2.2 Taxation of Cryptocurrency Assets

2.2.1 Personal Income Tax

When using cryptocurrency to purchase personal living and entertainment items, because the purpose of purchasing cryptocurrency is for "personal use or consumption" rather than investment or profit, these cryptocurrencies are more likely to be classified as "personal use assets." Due to the small amounts involved, individuals using cryptocurrency for these purposes do not need to report the capital gains or losses generated for tax purposes. Therefore, in this case, cryptocurrency assets are not subject to capital gains tax (CGT) because they are considered personal use assets and are subject to personal income tax.

2.2.2 Capital Gains Tax

If individuals or entities buy and sell cryptocurrencies for profit, they may be classified as investors and are required to pay capital gains tax. They also need to keep records of cryptocurrency transactions. This specifically includes the following situations: trading, swapping, or exchanging cryptocurrencies (including exchanging one cryptocurrency for another), selling, donating, or gifting cryptocurrencies, converting cryptocurrencies to fiat (legal) currency, such as the Australian dollar, and using cryptocurrencies to purchase goods or services.

Cryptocurrencies used for investment are subject to tax on profits and cannot be exempted from tax by claiming personal use. Whether there is a profit depends on whether the proceeds from sales, trades, etc., exceed the cost. If the investment incurs a loss, the investor can use this loss to offset future profits, but cannot use it to offset other personal income of the investor. If the investor holds the investment cryptocurrency for one year or more, they may be eligible for tax benefits related to capital gains when selling the cryptocurrency.

2.3.3 Goods and Services Tax (GST)

If an organization is developing and selling cryptocurrencies, or engaging in the buying and selling of cryptocurrencies as part of its operations, and holds cryptocurrencies for a short period of time while employing staff to monitor cryptocurrency price fluctuations, the net profits from trading cryptocurrencies may be taxed as business income. The held cryptocurrencies will be considered as inventory, and the difference between the beginning and ending inventory will also be included in the calculation of taxable income.

2.2.4 Fringe Benefits Tax

If an employee wishes for their employer to pay wages in cryptocurrency, two scenarios typically arise: if the employee has a "salary sacrifice agreement" with the employer, then the payment in cryptocurrency will be considered a benefit, and the employer will be subject to fringe benefits tax according to relevant laws; if the employee does not have a "salary sacrifice agreement" with the employer, the income will be treated as salary income, and the employer will need to withhold personal income tax, equivalent to the value in Australian dollars.

2.3 Evolution of Cryptocurrency Taxation

Before July 1, 2017, the Australian government labeled cryptocurrency with "double taxation," meaning that anyone using cryptocurrency for payments actually paid Goods and Services Tax (GST) twice: once when purchasing the cryptocurrency and again when using the cryptocurrency for goods and services exchange. Since July 1, 2017, buying and selling cryptocurrencies no longer requires payment of GST, aligning the treatment with other financial products (but not recognizing Bitcoin as a currency).

The Australian government has historically taken a minimal intervention approach to regulating cryptocurrencies. However, in December 2021, Treasurer Josh Frydenberg hinted at reforms in the industry, announcing that the Morrison government would make the largest reforms to the industry in 25 years. In the same year, the Australian government drafted reform proposals for regulating cryptocurrencies, sought industry opinions on establishing a digital asset licensing and regulatory system, and conducted a series of reviews of the cryptocurrency and fintech sectors, each proposing expanded and clarified regulatory systems around cryptocurrencies and payments.

In March 2022, the Australian Treasury released a consultation paper on the proposed regulatory framework for crypto asset secondary service providers (CASSPrs), providing customized application space to address subtle differences in cryptocurrency service. In the same year, the Australian Securities and Investments Commission (ASIC) also released its enforcement plan for 2022-2026, emphasizing that cryptocurrencies are a focus of regulatory authorities.

In 2023, the Australian Senate Economics Legislation Committee formally considered Senator Andrew Bragg's "Digital Assets (Market Regulation) Bill 2023." The bill aims to establish a digital asset licensing system and require reports on the circulation of the Australian central bank digital currency (CBDC). The bill also provides clear definitions for digital assets, digital asset exchanges, and stablecoins, as well as requirements for digital asset exchange authorization, digital asset custody authorization, stablecoin issuance authorization, and disclosure requirements for Australian CBDC service providers. The bill is planned to come into effect the day after the end of a six-month period from the date of approval. The regulation of cryptocurrencies largely depends on whether the assets are considered financial products. If the assets are financial products, they are regulated by the Corporations Act and the Australian Securities and Investments Commission Act (ASIC Act). If the assets are not financial products, they are regulated by the Competition and Consumer Act (CC Act). Whether cryptocurrencies are considered financial products depends on the use of the assets, as defined in section 763A of the Corporations Act.

Ultimately, the bill was opposed by the Australian Senate Economics Legislation Committee, which recommended that the government continue to consult with the industry on the appropriate regulation of digital assets in Australia. The committee stated that the bill lacked detail and certainty and was inconsistent with the government's approach. The bill "does not meet international standards" and raises "genuine concerns about regulatory arbitrage and adverse consequences for the industry." Currently, the relevant legislation for cryptocurrencies is still under discussion.

3 Frontier: Australia's New Digital Asset Bill is Seeking Opinions

Recently, Australian Assistant Treasurer Stephen Jones announced the proposed digital asset bill "Regulating Digital Asset Platforms" during the Australian Financial Review Cryptocurrency Summit. The proposal plans to require cryptocurrency exchanges to obtain a financial services license. Jones then outlined the Treasury's proposals for digital asset platforms: these platforms will be required to hold an Australian financial services license, act fairly and honestly, provide dispute resolution processes, meet solvency and cash reserve requirements, and maintain financial records. In addition, cryptocurrency exchanges and other digital asset platforms will have an obligation to monitor and intervene in market misconduct.

The proposed digital asset bill will focus on exchanges, requiring them to comply with existing financial services laws, rather than regulating individual tokens or cryptocurrencies. Specifically, cryptocurrency exchanges holding a total of over $5 million or any individual user holding over $1,500 in cryptocurrencies will be required to obtain an Australian Financial Services License (AFSL) issued by the Australian Securities and Investments Commission (ASIC). These regulations will compel exchanges to adhere to strict standards, including transparent and fair provision of services, managing conflicts of interest, disclosing information, submitting financial reports, and meeting solvency and cash reserve requirements. Additionally, asset custody rules will be enforced to strengthen consumer protection within the industry.

Since the digital asset bill was rejected by the Australian Senate Economics Legislation Committee, the Australian government has extended public and industry consultations until December 1, and the draft legislation for public consultation is expected to be released in 2024. Once the rules are in effect, cryptocurrency exchanges will have a 12-month transition period to adapt to the new regulatory framework.

Overall, cryptocurrency taxation in Australia is in a constantly evolving stage, and cryptocurrencies are facing increasingly stringent policy regulations. Various stakeholders in Australia are also engaged in a game of how to regulate digital assets, which will bring new opportunities and challenges to the tax authorities and taxpayers in the long run. During this process, investors should closely monitor relevant tax policies in Australia and develop reasonable tax plans based on their specific circumstances.

[References]

[1] Australian Taxation Office. (2023). Individuals (ato.gov.au).

[2] Sina Finance. (2017). From July 1, Australia recognizes Bitcoin as a currency, cancels double taxation.

[3] Sohu. (2022). Australian government to increase regulation of cryptocurrencies, the largest overhaul in 25 years.

[4] Foresight News. (2023). Australian Senate Economics Legislation Committee submits "Digital Assets (Market Regulation) Bill 2023".

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