Crypto’s tax and regulatory landscape in Australia

Whilst crypto assets have been largely unregulated, Australian regulators have taken note of digital assets and recognised they are here to stay. Most recently, the Albanese Government announced in late August that it would undertake a “token mapping” exercise in an effort to identify and distinguish digital assets that are covered by existing financial services law and determine other non-financial products that may require new legislation. ASIC has also included crypto assets within its ‘core strategic projects’ for 2022-2023, highlighting the need for consumer protection.

Treasury and the ATO have clarified that crypto would continue to be treated as a Capital Gains Tax (CGT) asset for taxation purposes for ordinary investors. However, there are also instances where individuals can earn income through activities including airdrops, interest from staking, and yield-farming, where taxpayers are guided to treat such activities on revenue account, notwithstanding the underlying asset will be treated on capital account when sold. ATO guidance has recently been updated to refer to the term ‘Crypto Assets’ rather than use Bitcoin as the basis of its guidance which recognises the broader utility and diversity of the crypto ecosystem.

There remains a significant level of uncertainty as to the tax treatment of Crypto Assets for tax professionals. There are an increasing number of Australians who engage with complex protocols in the Decentralised Finance (DeFi) or gaming (GameFi) space who are seemingly unaware of the tax implications of engaging with the protocol.

Current ATO guidance is limited in this regard, and clarity is sought by the industry. In August, the Board of Taxation released a consultation guide seeking public input on their review of the tax treatment of digital assets. The Board is due to report its findings to the Government at the end of 2022.

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