The taxation of cryptocurrency in Australia is soon coming to an end.
So far, Australia has been taxing cryptocurrency purchases under the Goods and Services Tax (GST) at a fixed rate of 10%. They were considered “intangible property”.
If the holder of the currency used it to pay for a good or service, they would pay an added 10% under the same GST, which caused a double tax on cryptocurrencies. Establishments thus opted not to accept crypto because everything just got 10% more expensive when they did, and people just wouldn’t use it. This also hindered the development of FinTech (financial technology) in Australia, and prevented the mainstream adoption of cryptocurrency down under.
Although the government and treasury had been claiming they’ll remove double tax from crypto since last year, it took them over a year to write a proposal in which to define the process. In the 2016/2017 budget outline, they finally declared it ready.
Three different options for GST crypto reform were proposed: consider cryptocurrency to be money, consider crypto input tax credit (the European model) like shares, loans, etc. thus being tax-free until realizing a fiat profit, or just consider cryptocurrency a tax-free good altogether. Whichever option ends up being chosen, the consequences will be the same: no double tax on cryptocurrency.
The government decided to categorize cryptocurrencies as such according to the following criteria:
- A digital or non-tangible unit of account.
- Not being denominated in units of other currencies, making it a unique currency.
- A commonly used medium of exchange. They failed to state exchange of what, but one suggestion – which even the proposal admits might be flawed and unfair to other crypto – is that the total amount of it in circulation relative to AUD is a factor.
- Two-way convertibility to real-world goods, services and fiat currency, outside
of a centralized exchange. In other words, it shouldn’t be common to hear that “it’s not real currency” or “not accepted here”.
- Reliance on cryptographic techniques to validate transactions.
- Lack of centralized control or centralized validation of the currency, such as
through the ‘distributed ledger’. The proposal leaves some wiggle room for interpreting centralization, and accepts hybrid models. For example, the fact that 70% of bitcoin’s mining power is in China doesn’t make it centralized because China is too big.
The Australian authorities are hoping this process of de-taxing crypto will push Australian FinTech forward and take at least one piece of the FinTech leadership pie away from the vastly more modern and open Switzerland.
The proposal still hasn’t been brought before parliament for a vote – it’s assumed they’re still ironing out the kinks visible in the above criteria – but for now, no meaningful opposition is expected. Even the country’s treasurer, Scott Morrison, openly supports and endorses FinTech and cryptocurrency:
As Treasurer, I want to help create an environment for Australia’s FinTech sector where it can be both internationally competitive and play a central role in aiding the positive transformation of our economy.
FinTech is going to revolutionise how consumers and businesses, as the drivers of economic activity, interact. This is going to have big implications for demand in the future. We need to be part of these changes and we have got to work out the best way to engage with FinTech and prepare for the financial system and economy of the future.