Depth | Author | TaxDAO

This article details the basic situation and development trends of cryptocurrency taxation in Australia, including three parts: an overview of the general tax system in Australia, an analysis of cryptocurrency taxation, and an analysis and outlook on Australia's latest digital legislation, the "Regulating Digital Asset Platforms."

1 Main Types of Taxes and Tax Rates in Australia

1.1 Overview of the General Tax System in Australia Australia is a federal country, and through long-term evolution and development, a comprehensive and scientific tax system has been established. In addition, a unique tax administration system and a rigorous and effective tax audit mechanism strongly ensure the smooth implementation of the tax system. Australia implements a divided tax system, with tax collection rights primarily concentrated in the Australian Taxation Office. Its fiscal powers correspond to the responsibilities of the federal, state, and local governments, each enjoying the right to levy exclusive taxes and fulfill related obligations as stipulated by the constitution and laws. Tax revenues, like those in other divided tax system countries, are divided into central tax revenues and local tax revenues. Direct taxes are the main type of tax in this country, with personal income tax being the most important, accounting for about 60% of total federal tax revenue. The tax year in Australia runs from July 1 of the previous year to June 30 of the current year (financial year). 1.2 Personal Income Tax Australian residents 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 of the tax year in which it is received, and most taxpayers calculate taxable income based on the cash basis principle. Exempt income includes pensions and social security payments made by the Australian government, employee fringe benefits, scholarships, personal injury claims, and, in some cases, foreign employment income. Expenses related to exempt income incurred during the tax year cannot be deducted before tax. Non-resident individuals only need to pay personal income tax on their taxable income sourced from within Australia and deemed to be sourced from within Australia (for example, capital gains from taxable assets in Australia). Australia taxes beneficiaries who receive trust income. The personal income tax in Australia operates on a progressive tax system, with various types of income combined and subject to a tax rate schedule. The personal income tax rates applicable to Australian resident taxpayers for the 2022-2023 financial year are as follows: the portion not exceeding 18,200 is taxed at 0%, the portion from 18,201 to 45,000 (inclusive) is taxed at 19%, the portion from 45,001 to 120,000 (inclusive) is taxed at 32.5%. The portion from 120,001 to 180,000 (inclusive) is taxed at 37%, and the portion exceeding 180,000 is taxed at 45%. 1.3 Corporate Income Tax Corporate income tax in Australia applies to companies, limited partnerships, and certain trust enterprises (unit trusts and public trading trust funds). An Australian resident company is defined as a company registered in Australia. The scope of taxation for Australian resident companies needs to be based on regulations, declaring corporate income tax on their taxable income sourced globally, including net capital gains. Non-resident companies in Australia only need to pay income tax on income sourced from within Australia. If there are dividends, they should not exceed 15% of the total dividends; if there are interest payments, they should not exceed 10% of the total interest; if it is royalties, they should not exceed 10% of the total royalties. The corporate income tax rate is uniformly set at 30%. For the 2021/2022 financial year and subsequent years, small businesses with annual revenue not exceeding 50 million AUD are taxed at a reduced rate of 25%. 1.4 Goods and Services Tax In Australia, those who have registered or are required to register for goods and services tax are taxpayers for goods and services tax when selling taxable goods or providing taxable services within the country, or importing goods and services. Businesses with annual revenue exceeding 75,000 AUD (150,000 AUD for non-profit organizations) are required to register for goods and services tax. All taxi operators, regardless of annual revenue, must register. Taxpayers must pay goods and services tax on taxable goods and services sold or imported within Australia. The goods and services tax rate is 10%, except for certain 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 levied on profits obtained from the sale of assets. If a taxable entity realizes a capital gain (profit) when selling an asset, it will be included in the overall tax obligations that the taxable entity must fulfill. This tax is included in the income tax return, which is submitted after the end of the Australian financial year on June 30. If a taxpayer sells a capital asset, such as real estate or stocks, they must report any profits or losses generated in the ongoing income tax return to avoid penalties. Although capital gains tax has a separate name, it is part of income tax. Australian tax residents are obligated to report capital gains and losses in their tax returns and subsequently fulfill the related tax obligations. In many cases, taxpayers may also receive discounts on capital gains tax owed. When a taxpayer disposes of an asset, if the taxpayer has owned the asset for at least 12 months and is an Australian tax resident, they may reduce the capital gains tax owed by 50%. This is known as the "capital gains tax discount." This means that the taxpayer only needs to pay capital gains tax on half of the sale profit. In addition to the discount, some capital gains tax may be completely exempt. The main residence is exempt from capital gains tax. If an individual purchases a property and resides in that property from the date of purchase, and sells it during their residency, regardless of the capital gain, that amount is exempt from capital gains tax. "In addition to the above federal taxes, local taxes in Australia mainly include: stamp duty, land tax, payroll tax, etc. Land tax is a tax levied annually by the Australian government on landholders based on the value of the land they hold at the end of the calendar year. In Australia, land tax is levied independently by each state government. The land tax policies vary among different states but are generally similar.

2 Cryptocurrency Tax System in Australia

2.1 Government Definition of Cryptocurrency Assets The ATO (Australian Taxation Office) defines cryptocurrency assets as follows: Cryptocurrency assets are a digital representation of value that can be transferred, stored, or traded electronically. Cryptocurrency assets are a subset of digital assets that use cryptographic techniques 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 assets must comply with the same tax rules as general assets. The tax treatment will depend on how the taxable entity acquires, holds, and disposes of the assets. 2.2 Taxation of Cryptocurrency Assets 2.2.1 Personal Income Tax When purchasing personal living and entertainment items with cryptocurrency, since the purpose of purchasing cryptocurrency is "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 do not need to report capital gains or losses generated. Therefore, in this case, cryptocurrency assets do not fall under the capital gains tax (CGT) category, as they are considered personal use assets subject to personal income tax. 2.2.2 Capital Gains Tax If individuals or entities buy and sell cryptocurrency for profit, the taxable entity may be classified as an investor and required to pay capital gains tax. They must also keep records of cryptocurrency transactions. This includes the following situations: trading, swapping, or exchanging cryptocurrencies (including exchanging one cryptocurrency for another), selling, donating, or gifting cryptocurrency, and converting cryptocurrency into conventional (legal) currency, such as AUD, or using cryptocurrency to purchase goods or services. Cryptocurrencies used for investment that generate profits are taxable and cannot be exempted on the grounds of personal use. Whether there is a profit depends on whether the proceeds from sales, trades, etc., exceed the costs. If an investment incurs a loss, the investor can use this loss to offset future profits but cannot use it to offset other personal income. If the investor holds the investment cryptocurrency for one year or more, they may be eligible for tax benefits related to capital gains upon selling that cryptocurrency. 2.2.3 Business Tax If an organization is developing and selling cryptocurrency, or buying and selling cryptocurrency in an organizational and business model, and holds cryptocurrency for a short period while employing staff to monitor cryptocurrency price fluctuations, they may need to report the net profits from cryptocurrency transactions as business income for tax purposes. The held cryptocurrency will be classified as inventory, and the difference between the beginning and ending balances will also be included in taxable income calculations. 2.2.4 Fringe Benefits Tax If an employee wishes for their employer to pay wages in cryptocurrency, two situations typically arise: if the employee has a "salary sacrifice agreement" with the employer, then the payment in cryptocurrency will be considered a fringe 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, then the income will be recognized as wage income, and the employer must withhold personal income tax equivalent to the value in AUD. 2.3 Historical Development of Cryptocurrency Taxation Before July 1, 2017, the Australian government labeled cryptocurrency with "double taxation," meaning that anyone using cryptocurrency for payment effectively paid goods and services tax (GST) twice: once when purchasing cryptocurrency and again when using cryptocurrency for the exchange of goods and services. Since July 1, 2017, buying and selling cryptocurrency is exempt from GST, aligning its treatment with other financial products (though not recognizing Bitcoin as currency). The Australian government has historically taken a minimal intervention approach to regulating cryptocurrency. However, in December 2021, Treasurer Josh Frydenberg indicated reforms for the industry, announcing that the Morrison government would implement the most significant reforms in 25 years for the industry. In the same year, the Australian government drafted reform proposals for regulating cryptocurrency, seeking industry input on establishing a licensing and regulatory framework for digital assets, and conducted a series of reviews of the cryptocurrency and fintech sectors, each proposing regulatory recommendations for expanding and clarifying regulations around cryptocurrency 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 tailored applications to address the nuances of crypto asset services. In the same year, the Australian Securities and Investments Commission (ASIC) also released its enforcement plan for 2022-2026, emphasizing that cryptocurrency is a focus for regulators. In 2023, the Australian Senate Economic Legislation Committee formally weighed the "Digital Assets (Market Regulation) Bill 2023" proposed by Senator Andrew Bragg. This bill aims to implement a digital asset licensing system and establish reporting requirements for 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 licensing digital asset exchanges, digital asset custodians, stablecoin issuers, and disclosure requirements for Australian CBDC service providers. The bill is set to take effect the day after the six-month period following its approval. The bill indicates that the regulation of cryptocurrency assets largely depends on whether the assets are considered financial products. If the assets are financial products, they are regulated under the Corporations Act and the ASIC Act. If the assets are not financial products, they are regulated under the Competition and Consumer Act (CCA). Whether cryptocurrency assets are considered financial products depends on the use of the assets, as defined in Section 763A of the Corporations Act. Ultimately, the bill faced opposition from the Australian Senate Economic Legislation Committee, which recommended that the government continue consultations with the industry on developing suitable regulations for digital assets in Australia. The committee stated that the bill lacks detail and certainty and is inconsistent with the government's approach. The bill "does not align with international standards" and raises "real concerns about regulatory arbitrage and adverse consequences for the industry." Currently, relevant legislation regarding cryptocurrency is still under discussion.

[References]

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

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

[3] Sohu. (2022). The Australian government will intensify cryptocurrency regulatory reforms, marking the largest overhaul in 25 years.

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