Cryptocurrencies like Bitcoin, Ethereum and Dogecoin have been grabbing headlines in recent years. However, as the crypto industry continues its rise into the mainstream, regulations in Australia have become tighter. Before investing in cryptocurrency, however, it’s vital to understand the laws surrounding it.
This guide will cover the legalities of cryptocurrency in Australia as well as the tax obligations of investing in crypto.
What is cryptocurrency?
A cryptocurrency is a digital asset or currency that is underpinned by blockchain technology and secured by cryptography. A blockchain is a type of distributed ledger technology that stores an unchangeable record of transactions on a public ledger. T
One of the most defining characteristics of cryptocurrency is that it is decentralised. This means that it is not controlled or created by a central authority such as a central bank or government.
Bitcoin, the first cryptocurrency ever invented, was created as a decentralised alternative to fiat currency. It can be used to buy and sell goods and services. However, its most common use is as a store of value.
Is cryptocurrency legal in Australia?
In Australia, cryptocurrencies, digital assets and cryptocurrency exchanges are legal. Laws relating to crypto are quite progressive compared to the rest of the world. According to LNP senator Andrew Bragg, Australia is a world leader in cryptocurrency.
In 2017, cryptocurrencies like Bitcoin were declared legal by the Australian federal government. Following this declaration, crypto assets then became subject to laws set out in the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF 2006).
Crypto assets are considered property by the Australian Taxation Office (ATO) and are therefore subject to Capital Gains Tax (CGT). Prior to 2017, however, digital currencies were subject to double tax.
Some privacy coins such as Monero (XMR) have been banned from being listed on cryptocurrency exchanges. Unlike Bitcoin, which stores transaction data on a public ledger, XMR transactions are completely anonymous. This decision to ban privacy coins from being listed on exchanges was made by the Australian Securities and Exchange Commission (ASIC).
Crypto exchanges in Australia
The tightest crypto regulations in Australia relate to crypto exchanges. Crypto Exchanges in Australia are legal, however, they must register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and comply with the anti-money laundering laws set out in the AML/CTF 2006 part 6A.
If a cryptocurrency exchange provides registrable exchange type services, they must:
- Maintain financial records
- Verify and identify all of their users
- Comply with government AML/CTF reporting requirements (specifically Part 6A – the Digital Currency Exchange Register)
Crypto and Bitcoin tax obligations
In 2020, the ATO speculated that between 500,000 and 1 million Australians own crypto and announced their plans to target and audit cryptocurrency traders by tracking interactions with crypto through exchanges, financial institutions and banks.
The ATO also published guidance on how cryptocurrency is treated for tax purposes.
Cryptocurrency can be subject to income tax, however, it is most commonly subject to Capital Gains Tax (CGT). We’ve explored this more in the section below.
Capital gains tax
The majority of crypto investors in Australia will likely be subject to CGT. This is the same type of tax subject to profits made from the sale of other assets like stocks and real estate.
A CGT event in cryptocurrency is triggered when one of the following occurs:
- Selling or gifting cryptocurrency
- Swapping one crypto asset for another
- Converting cryptocurrency to a fiat currency (AUD)
- Using cryptocurrency to purchase goods and services
A common misconception is that there is a flat capital gains tax rate. Profits from capital gains assets are actually added to your other sources of income to form your total assessable income. This is then taxed at individual tax rates.
If you hold an asset for longer than 1 year (12 months), you may be eligible for a 50% discount. This discount is applied as an incentive by the ATO for people to make wise, long term investment decisions.
Under new rules, any CGT reporting violation (failure to report crypto profits) may result in the ATO collecting the penalty of 75% of the outstanding tax liability.
Crypto self-managed super funds
Cryptocurrency self-managed super funds (SMSFs) have become more popular as a long term investment option in recent years. Crypto SMSFs are legal in Australia, however, they require a high level of management to ensure they are compliant with regulations in Australia.
SMSFs must maintain records of all crypto investments and transactions so they can be taxed accordingly. It is always best to seek professional advice before committing to a cryptocurrency SMSF and to ensure your SMSF is compliant with regulations and tax laws.
Are NFTs legal in Australia?
Non Fungible Tokens (NFTs) are unique digital collectibles that verify ownership of a particular asset like a piece of art, music or in-game item. They have recently become extremely popular, with some NFTs selling for millions of dollars.
NFTs are legal in Australia. However, similar to crypto assets, they are considered property by the ATO and are therefore subject to Capital Gains Tax (CGT).