A large number of business leaders and crypto investors are calling for Australia’s tax rules to be updated to keep up to the pace of the rapid innovation that is occurring in the $52 trillion crypto market.
Crypto entrepreneurs are begging for the regulatory and legal certainty required for banks and investment managers to connect blockchain-based technologies with the traditional financial system and bring digital assets into the economic mainstream.
This means that the explosion of new business models and investment had grown too large to for crypto to still be considered fringe.
“Banks are getting to the point where they’re willing to connect those two systems. “It makes sense that banks will be the primary point where that connectivity is most effective, and that’s the huge opportunity for forward-thinking banks,” says Kain Warwick, Young Rich Lister and founder of Synthetix, an early crypto derivatives platform governed by a community of 85,000 users.
The Summit heard requests from entrepreneurs looking to de-risk their operations for more certainty on issues including taxation and management responsibility.
Delegates also heard that regulators, including Australia’s financial intelligence agency, AUSTRAC, were grappling with the extent of criminal activity on crypto networks, warning digital currencies were being used to finance global terrorism.
Scammers also remain a problem, with so-called “rug-pull” schemes, where crypto developers abandon a project and run away with investors’ funds, triggering billions of dollars in investor losses.
“It is unsatisfactory. It is absolutely a problem,” says Ethereum co-founder and former Goldman Sachs technology executive Joseph Lubin speaking live on webcam via his Brooklyn base.
Chloe White, former Treasury fintech adviser turned crypto policy consultant, said last year’s report by a committee chaired by Senator Andrew Bragg was progressive enough to provoke people overseas to sit up and pay attention to Australia. She highlighted its proposal to acknowledge ‘decentralised autonomous organisation’ (DAOs), a new form of company of which Synthetix is an example.
“That’s the opportunity here - to build a holistic, welcoming environment to facilitate innovators and entrepreneurs. They have long been left out of the regime but are still moving into this space. Supporting innovation and protecting consumers actually work hand-in-hand, but we often talk about them like they’re trade-offs but I don’t accept that that’s the case,” says Chloe White.
The ATO Issues Warning Over Unpaid Crypto Related Taxes
The Australian Tax Office (ATO) is encouraging accounting professionals to engage with their clients on their cryptocurrency activity.
The ATO acting assistant commissioner, Sylvia Gallagher, confirmed that people as young as 18 years were getting involved in cryptocurrency trading and that the authority was paying attention.
Cryptocurrency trade reportedly increased by 64 percent in 2021 as over half a million Australians engaged in trading digital coins. The ATO is reminding taxpayers that data matching is ongoing, and efforts are being made to ensure no activity slips past them.
Sylvia Gallagher outlined that much information had already been collected and would be used to ensure a level playing field as taxpayers met their obligations.
Sylvia Gallagher further flagged three types of transactions that required recording on returns. This included selling or gifting of cryptocurrency, trading or exchanging cryptocurrency, and converting crypto into fiat money.
It was outlined that depending on the situation, different tax measures will apply. For instance, where crypto was transferred from one wallet to another without a change in ownership, no capital gains tax (CGT) would apply. The ATO website explains that “if your cryptocurrency holding reduces during this transfer to cover the network fee, the transaction fee is a disposal and has capital gain consequences”.
For a cryptocurrency that is disposed of as part of business assets, the profit was assessable as income and not CGT. Businesses that received payment in the form of crypto should also consider this as part of their income and value it in Australian dollars.
Sylvia Gallagher however confirmed that gains and losses made from trading in crypto designated for personal use were not subject to CGT. She advised taxpayers to refer to the guidelines posted on the ATO website on the tax treatment of cryptocurrency transactions.
The ATO and other State & Federal government revenue authorities in Australia will continue to find new ways to deal with those taxpayers that are not paying their fair share of tax or meeting their financial compliance obligations – more than ever that applies to cryptocurrency trade.
As official reviews, audits, investigations, and inquiries of taxpayer lodged returns and their taxation affairs in general continue to remain prevalent, the best course of action is to ensure that your accounting firm has a comprehensive tax audit insurance solution such as Audit Shield in place.