ATO and cryptocurrencies: where is the Australian government headed?

ATO & Crypto (1800 × 1000 px)

Cryptocurrencies are going mainstream and the Australian government intends to keep up.

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Crypto, NFT and DeFi are becoming more and more mainstream. The Australian Tax Office (ATO) estimates that over 1 million Australian taxpayers have invested in cryptocurrencies since 2018.

Considering that around 5% of Australians have invested in digital currencies, it is not surprising that the government has decided to put it crypto under the microscope.

In 2022, the ATO contacted over 100,000 Australians with a targeted reminder to declare gains and losses on investments in digital assets. Another 300,000 people were asked to report cryptocurrencies when filing their 2021 tax returns.

ATO Deputy Commissioner Tim Loh said the tax office (which had access to transaction history from some exchanges as early as 2014) is “alarmed that some taxpayers think cryptocurrency anonymity provides a license. to ignore their tax obligations “.

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The government raises a legitimate concern. However, there is still a substantial lack of training and clarity on the part of the taxman regarding digital investments.

A public review on digital asset taxation, token mapping exercises, and plans for an RBA-backed stablecoin are some steps Canberra is taking to ensure it stays ahead.

With many changes on the horizon, let’s take a look at what investors can expect in the coming months and years.

Have your say on how digital assets are taxed

Earlier this month, the Board of Taxation released a Consultation guide [PDF] on its upcoming review on the taxation of digital assets.

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The review intends to examine the current tax treatment of digital assets in Australia, analyze the appropriate taxation of these assets and assess whether any changes to existing laws are justified.

The Board of Taxation will work closely with the community and collaborate with the Treasury and the ATO. Consultations it will take place with taxpayers, tax representatives, industry stakeholders and academics.

The board will evaluate the results of the consultation and a report will be delivered to the government by the end of 2022.

Danny Talwar, head of tax at Koinly, said:

“The Board of Taxation review has been largely anticipated and is a welcome step to gain clarity in cryptocurrency tax regulation for Australia. With limited ATO guidance, issues such as staking, DeFi and play-to-earn play. they have caused headaches for accountants. The review will eliminate a number of more technical problems stemming from crypto assets. “

Crypto Token Mapping: An Australian World First

The newly elected Labor government also announced a first-of-its-kind token mapping project.

The project aims to provide the Treasury Department with information on the cryptocurrencies used by Australians and how best to classify and regulate them.

The classification process will take into consideration the technological characteristics of specific cryptocurrencies to help determine and rank their asset class. The necessary information will be gathered through the project’s open source code repository.

The goal of token mapping is to help the government better regulate the cryptocurrency industry based on existing laws and fill in the gaps needed to develop specialized legislation.

In a recent press release, Treasurer Jim Chalmers said:

“As it stands, the cryptocurrency industry is largely unregulated and we need to do some work to find the right balance so we can embrace new and innovative technologies while safeguarding consumers.”

While there is still no detailed breakdown of what token mapping entails and how it will affect investors at tax time, Chalmers said a public consultation paper on the matter would be released soon.

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stablecoin of the Australian dollar

Meanwhile, the Reserve Bank of Australia (RBA) and the Digital Finance Cooperative Research Center (DFRCC) have announced a collaborative research project.

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The project will explore potential use cases for an Australian dollar or “Central Bank Digital Currency (CBDC)” stablecoin.

What is a stablecoin?

Stablecoin I am considered cryptocurrencies, as they are stored on the blockchain and publicly visible via a distributed ledger. However, stablecoins are not minted like other cryptocurrencies via mining or staking. Instead, they are backed by an underlying asset, in this case, AUD.

An AUD-backed stablecoin would be pegged 1: 1 to the Australian dollar and theoretically should not deviate from its price.

TrueAUD (used by Finder Earn) is an example of an existing AUD stablecoin.

Objectives of the project

The RBA hopes to fill gaps in its understanding of decentralized technologies and surrounding legal and regulatory provisions. It will also help the RBA recognize business models that could benefit from an AUD stablecoin.

The press release published by the RBA stated,

“The project with the DFCRC will help fill this gap by focusing on innovative use cases and business models that could be supported by issuing a CBDC. The project will also be an opportunity to delve into some technological, legal and regulatory considerations. associated with a CBDC. “

Next steps

The next steps of the project will reportedly involve the development of a small-scale AUD stablecoin designed to operate in a “gated environment”.

The RBA will invite interested participants to develop specific use cases demonstrating innovative, value-added payment and settlement services offered by an AUD stablecoin to Australian households and businesses.

“This project is an important next step in our CBDC research. We look forward to engaging with a wide range of industry participants to better understand the potential benefits a CBDC could bring to Australia.”

Said Michele Bullock, deputy governor of the RBA.

While a roadmap has yet to be released, the RBA says the project will take about a year to complete.

A document will be released in the coming months to help further explain the collaborative project and how interested participants can participate.

Nigel Dobson speaks to the Australian Blockchain Week panel.

ANZ’s stablecoin and DeFi ambitions

It is not just the government that is expressing interest in the digitization of the Australian dollar. Earlier this year, ANZ Bank unveiled its own stablecoin: A $ DC.

“An Australian dollar stablecoin issued by ANZ is an important first step in enabling our customers to find a secure gateway to the digital economy.”

Said Nigel Dobson, head of banking services at ANZ.

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ANZ delivered the stablecoin for Victor Smorgon Group through Zerocap, a private wealth management firm for digital assets. He has also partnered with leading digital currency companies Fireblocks, Chainalysis and OpenZeppelin to develop the A $ DC.

The bank minted 30 million of its stablecoins using a custom, EVM-compatible smart contract distributed through the Fireblocks platform. The stablecoins were transferred between the parties before being redeemed in AUD.

The initial purpose of the stablecoin is to address the operational problems of corporate customers. However, with continued development and conversations between ANZ and government regulators, the A $ DC could soon reach the bank’s 8.5 million retail customers.

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Thoughts for the future

Decentralized technologies are evolving at a rapid pace. Taxation, consumer protection and the laws surrounding these digital currencies must be part of this evolution.

Greater regulatory certainty will only help promote Australia’s next million cryptocurrency investors.

While greater regulatory certainty is viewed positively by big players in the industry, including major exchanges, it is important that regulation does not stifle innovation in Australia, considering the huge potential of the digital asset industry “,

Koinly’s head of tax, said Danny Talwar.

This information should not be construed as an endorsement of the cryptocurrency or any specific provider, service or offering. It is not a recommendation for trading. Cryptocurrencies are speculative, complex and carry significant risks: they are highly volatile and sensitive to secondary assets. Performance is unpredictable and past performance is no guarantee of future performance. Consider your circumstances and get your advice before relying on this information. You should also check the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the websites of relevant regulatory authorities before making any decisions. Finder, or the author, may have holdings in the cryptocurrencies discussed.

Disclosure: The author owns a number of cryptocurrencies at the time of writing

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