Cryptocurrency Law in Australia: Navigating the Legal Landscape

by Drazen Kozaric

Cryptocurrency has been a game-changer in the world of finance, revolutionising how people transfer and store value. However, its rapid growth and decentralised nature have posed unique challenges for governments and regulators worldwide—Australia is no exception. As the use of digital currencies such as Bitcoin, Ethereum, Cardano, and newer altcoins has surged in recent years, the Australian government has been actively developing legal frameworks to govern the use, taxation, and trading of cryptocurrencies.

This article explores the current state of cryptocurrency law in Australia, focusing on regulatory efforts, taxation, and the legal status of digital assets.

 

Legal Status of Cryptocurrency in Australia

Australian laws apply where a crypto-asset is promoted or sold in Australia, including from offshore. The use of offshore or decentralised structures does not exempt individuals or organisations from key obligations under Australian laws.

Cryptocurrencies are not considered legal tender in Australia. This means they are not officially recognised as a form of currency that must be accepted for payment of goods and services. However, cryptocurrencies are legal to buy, sell, and use in Australia, subject to the country’s general laws and regulations.

The Australian government and regulatory bodies, such as the Australian Securities and Investments Commission (ASIC) and the Australian Transaction Reports and Analysis Centre (AUSTRAC), have clarified that cryptocurrencies are to be treated primarily as assets rather than currencies. Despite this, the legal status of cryptocurrencies in Australia is evolving as the technology and market mature.

Regulation and Oversight

Australia is one of the countries at the forefront of regulating the cryptocurrency industry. While the country does not have a comprehensive, dedicated regulatory framework for cryptocurrencies, several existing legal frameworks are applied to ensure the proper functioning of the crypto space and to mitigate risks related to fraud, money laundering, and other financial crimes.

1. Australian Securities and Investments Commission (ASIC)
ASIC plays a key role in regulating activities related to cryptocurrency that may fall under existing financial services laws. The regulatory body oversees Initial Coin Offerings (ICOs), crypto exchanges, and businesses that provide financial products and services involving cryptocurrencies.

For example, if a cryptocurrency token or digital asset is considered a financial product, it must comply with Australia’s Corporations Act 2001. ASIC has also issued guidance on the legal treatment of ICOs, stressing the need for compliance with consumer protection laws and anti-money laundering rules.

2. Australian Transaction Reports and Analysis Centre (AUSTRAC)
AUSTRAC is responsible for monitoring cryptocurrency exchanges and ensuring compliance with Australia’s Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws. Cryptocurrency exchanges must register with AUSTRAC, conduct customer identity verification (KYC), and report suspicious transactions.

These obligations are crucial for curbing illegal activities, such as money laundering or terrorism financing, in the crypto sector.

Taxation of Cryptocurrencies

In Australia, cryptocurrencies are treated as property for taxation purposes. The Australian Taxation Office (ATO) has issued guidelines regarding the taxation of digital assets, and cryptocurrency holders and businesses must comply with these rules to avoid penalties.

1. 1. Capital Gains Tax (CGT)
      The ATO classifies cryptocurrency as property, making it subject to Capital Gains Tax (CGT) when sold or disposed of. Individuals and businesses that hold cryptocurrency as an investment are required to pay CGT on any gains made when they sell or trade their digital assets. The amount of tax owed depends on how long the asset has been held.

• • • Short-term Gains: If a cryptocurrency is sold within 12 months, it is subject to full CGT.

• • • Long-term Gains: If held for longer than 12 months, the investor may be eligible for a CGT discount of 50%, depending on the circumstances.

Additionally, if cryptocurrency is used for personal transactions, such as purchasing goods and services, it may attract GST (Goods and Services Tax) under certain conditions, though exemptions exist for digital currency used as a means of payment.

2. Mining and Business Activity
   Cryptocurrency miners and businesses accepting cryptocurrencies in exchange for goods or services must also be aware of their tax obligations. Miners are subject to income tax on the rewards received for mining cryptocurrencies. Businesses receiving cryptocurrency payments are required to include the value of these transactions in their gross income.

Consumer Protection and Legal Risks

As the cryptocurrency sector grows, concerns regarding fraud, scams, and consumer protection are increasing. Australia has several consumer protection laws in place to safeguard users of digital currencies. However, the decentralised nature of cryptocurrencies makes it challenging for regulators to intervene in cases of fraud or market manipulation.

In response, the Australian government is considering updates to the legal framework to address these challenges, particularly concerning the regulation of crypto exchanges and decentralised finance (DeFi) platforms.

Future of Cryptocurrency Regulation in Australia

The Australian government continues to explore ways to enhance the regulatory landscape for cryptocurrencies. In 2021, the government announced plans to consult on a new regulatory framework for digital assets. This initiative aims to foster innovation while ensuring that consumers and investors are protected. Key areas of focus include:

1. Creating clear guidelines for crypto-asset classification: Discussions are underway to establish more defined distinctions between types of cryptocurrencies and their legal treatment.
2. Improving regulations for decentralised finance: As DeFi grows in popularity, lawmakers are considering how to regulate these platforms, which often operate outside traditional financial systems.
3. Introducing licensing for cryptocurrency exchanges: Regulatory efforts may focus on imposing more stringent requirements on cryptocurrency exchanges to increase accountability and transparency.

Conclusion

Australia’s approach to cryptocurrency law is pragmatic, focusing on existing legal frameworks and adapting them to address the unique aspects of digital assets. While cryptocurrencies are not classified as legal tender, they are treated as property and are subject to taxation and regulatory oversight. As the market for digital currencies continues to evolve, the government is likely to introduce further measures to ensure the industry remains safe, transparent, and conducive to innovation.
For individuals and businesses in Australia, staying informed about the legal landscape of cryptocurrency is crucial to ensure compliance with tax regulations, consumer protection laws, and anti-money laundering requirements.