- Australian law Firm Cadena Legal stated on Nov 27 that the new crypto tax guidance was no better than toilet paper.
- In October 2023, the Australian government released a proposal estimated to take effect by 2024.
- In November, the Australian Tax Office (ATO) released crypto tax guidance to impact how investors and traders interact with Defi and tax requirements.
Cryptocurrency was the first pioneer of the web3 industry. Its immutability, security, accountability, and diverse approach awed many developers, investors, and financial institutions. Its rudimentary approach to finances opened the world to new technology and inspired many to dive deeper into the capabilities of blockchain technology. Cryptocurrency offered numerous benefits that outpaced standard banking stems in a heartbeat. Unfortunately, these governments, financial institutions, and organizations soon encountered a similar problem: a lack of a regulatory framework.
Generally, cryptocurrency and digital assets forgo most organizations’ standard centralized structure; hence, set regulatory rules cannot apply to them. Furthermore, after the FTX crash, it became clear that definitive crypto laws were necessary to ensure safety and prosperity for the government and traders without infringing on their nature. However, attaining such a feat has proved more cumbersome than initially expected.
In recent developments, Australia’s crypto ecosystem has received another blow as its regulatory body has stated that the current crypto tax guidance is too confusing to present any result. This recent development has highlighted the complex nature of creating balanced crypto laws. Will crypto develop a regulatory body seeking safety while not relying on complete control?
New crypto Tax guidance sparks contemporary controversial debates.
Australia’s crypto ecosystems are among the few with a positive outlook on digital currency. Unlike most regions, Australia did not initially ban the concept of digital currency. In fact, despite the cruel crypto winter, Australia hit numerous highs within the crypto market. The region’s positive take on digital assets has influenced its citizens to adopt this new technology.
Among its most noticeable achievements was between 2020 and 2021, when Australia’s crypto ecosystem shit up by 56%. In the following year, it grew yet again by 23%, marketing the region as one of the most buoyant areas for cryptocurrency. Despite this, the FTX crash highlighted numerous loopholes in the region’s crypto laws.
The free reign of custodial exchanges poses a significant threat to citizens’ investments, and thus, this year, Australia’s regulatory body worked tirelessly to implement balanced crypto laws. In November, the Australian Tax Office (ATO) released crypto tax guidance to impact how investors and traders interact with Defi and tax requirements.
Unfortunately, cryptocurrency has become a complex beast to tame, as many legal practitioners cited numeric loopholes amid the new crypto tax guidance. According to the reports, Australian law Firm Cadena Legal stated on Nov 27 that the new crypto tax guidance was no better than toilet paper.
Their statement clarified that the latest addition to Australian crypto laws has numerous flaws, and among them was its non-binding nature. The law firms added that the new addition would only confuse Austrailians on how best to handle DeFi-based products without triggering a capital gains tax. Cadena’s legal founder, Harrison Dell, stated that the people would be better off ignoring the crypto tax guidance to avoid any run-ins with the long arm of the law.
Dell said, “If the ATO released a public ruling, we could all rely on that, but instead, we have this non-binding nonsense which makes everyone more confused and will probably reduce willing tax compliance by the Australian crypto community. It is inciting panic in the Australian crypto community. I am telling people it is best to ignore it and get their advice.“
Unfortunately, this has only split Autrailia’s crypto ecosystem as various crypto tax pundits stated the dangers of ignoring ATO crypto tax guidance. The opposition further noted that neglecting the guidance reports will only result in a legal battle, with the ATO presenting additional costs and headaches.
Australia’s crypto ecosystem attempts a balanced law.
Aside from the crypto tax guidance, the region has significantly improved its crypto laws. For instance, despite not declaring crypto as an official currency or legal tender, the ATO has categorized it as an asset. This milestone enabled the ATO to organize the Capital Gains Tax on digital assets.
Under these laws, crypto holders must pay tax only if the digital assets are held as investments. This new law enabled traders and crypto enthusiasts leeway to utilize digital assets through other methods while also allowing governments to benefit from the region’s massive trading volume. In addition, it also protects users in the case of a loss.
According to the ATO crypto laws, “In the unfortunate event that you made a capital loss in the previous financial year, you can deduct this from any capital gains. Offsetting gains on your crypto investments can save you money; you can also carry this loss to future years. While there are no time limits on carrying forward a capital loss, the losses must be used at the first available opportunity. You may also be able to claim capital loss if a hacker or scammer steals your crypto, or if you lose your private key. However, you will need to prove your loss to the ATO, alongside evidence that you cannot get these digital assets back.”
The Australian government has taken active measures to protect its citizens from another FTX scenario. This led to new legislation covering licensing and custody rules for crypto assets. In October 2023, the Australian government released a proposal estimated to take effect by 2024. The proposal states the guidelines, requirements, and penalties all crypto-based organizations must adhere to when operating within the region.
The proposal dictates that all crypto exchanges holding more than AUD 1,500 ($946) of any one client or more than AUD 5 million ($3.15 million) in total assets would require an Australian Financial Services license. The Australian Securities and Investment Commission will hand out all licenses and strictly canvas the region’s crypto ecosystem, sighting any deviants.
Despite the new crypto tax guidance splitting the region’s crypto enthusiasts, the effort to develop balanced crypto laws is seen. Bitcoin has recently showcased a positive trajectory aligning with the need for comprehensive crypto laws. Fortunately, just like the Web3 franchise, we may not get it on our first try, but with efforts and support from the government, finding a balanced regulatory framework may be closer than it seems.