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How Australia Is Leading In Crypto?

By Danny TalwarCryptocurrencyOct 21, 2022 16:16
au.investing.com/analysis/how-australia-is-leading-in-crypto-200531156
How Australia Is Leading In Crypto?
By Danny Talwar   |  Oct 21, 2022 16:16
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As of early 2022, an estimated one million Australians held one or more cryptocurrencies as part of their investment portfolio. At its peak, Australians held over $20 billion in digital assets. Australians continue to embrace digital assets and have been responsible for multi-billion dollar crypto startups such as Swyftx, Immutable and Magic Eden, DeFi platforms like Synthetix and GameFi projects, including Illuvium. 

While the market capitalisation of all cryptocurrencies is just shy of US$1 trillion (after peaking at more than US$3 trillion in late 2021), the asset class has hit over recent months alongside global equities.

What is clear is that a growing community of investors, institutions and now countries such as El Salvador are working toward supporting crypto asset adoption and development. The asset class is here to stay, meaning Australian investors and their accountants need to keep abreast of this rapidly growing industry - one that has been in the crosshairs of the ATO over the past few tax seasons. So, what changes have recently happened in the Australian crypto space and what are some of the basics you need to know when it comes to crypto taxes?

What are crypto assets in the eyes of the ATO?

Before June 2022, the ATO revamped their guidance and replaced the term "cryptocurrencies" with "crypto assets", with the definition of crypto assets being digital representations of the value recorded on a blockchain.

The change is perhaps more significant than it may seem on the surface. There are increasing crypto assets with various utilities, focusing on a means of exchange or payment. Crypto assets now represent more than just Bitcoin, with many use cases from Decentralised Finance (DeFi), tokenising real-world assets, governance, and more.

Crypto assets can be many things; however, they are not a foreign currency in the ATO's eyes. For tax purposes in Australia, crypto assets are generally considered property or Capital Gains Tax (CGT) assets for investors, which means they are subject to the individual's marginal income tax rate. 

Who's investing in crypto in Australia?

Of the million Australians currently invested in crypto - 69% of investors are male, with the remaining 31% female, with an average investment of just over $20,000 - meaning that over $20 billion is held in digital assets by Australians.

While most crypto holdings are by 18-34-year-olds, those in the 50-plus age category have average holdings of over $50,000, refuting the myth that only young people looking for quick gains should invest in cryptocurrencies.

Crypto holders in Australia have been put on notice by the Australian Taxation Office (ATO), with hundreds of thousands of letters sent to investors over the past few financial years to ensure crypto investors are aware that their holdings are taxable. Several changes have been made to the Australian regulatory landscape in recent months, driven by the ATO and the Treasury.

The ATO's new airdrop guidance

In September 2022, the Australian Taxation Office (ATO) updated its guidance on the tax treatment of "airdrops" - events where users of specific digital protocols receive rewards for using tokens that hold a financial value.

The cost basis on Initial Allocation Airdrops will now be $0, with capital gains now applying to Australian crypto investors upon selling any airdropped tokens. Examples of Initial Allocation Airdrops that have occurred over the past 12 months may include; ApeCoin (APE), Looks Rare (LOOKS), and Ethereum Name Service (ENS).

As the ATO did not announce this change to their guidance, many taxpayers who have already lodged returns are potentially unaware of this substantial change. Within the past month, the ATO updated their record-keeping guidance, recommending that Australian crypto investors use a "reputable Australian crypto tax calculator" when reconciling their crypto investments and generating their crypto tax calculations for the financial year. 


Australian Government's announcement on "token mapping"

In August, the Albanese Government announced a "token mapping" exercise - a global first by the Treasury Department on mapping all crypto assets currently (and formerly) held by Australians since 2017 using distributed ledger technology and publicly available information stored on the blockchain.

The announcement followed a recommendation from the Senate Select Committee on Financial Technology and Regulatory Technology, with crypto assets a largely unregulated space. The Australian Government has an enormous opportunity to implement regulations that promote innovation and growth of the new digital asset industry, with token mapping the first step before implementing the regulation.

The benefits of this approach allow the Government to choose which path it takes on crypto asset regulation carefully. However, for Australia to remain competitive for business in the sector, the Government must ensure that the token mapping exercise does not cause undue delay to a regulatory framework.

Board of Taxation Submissions

Meanwhile, the Board of Taxation has also requested input from the industry on tax legislation surrounding digital assets - with input expected from cryptocurrency exchanges, banks and financial institutions, crypto tax platforms, and retail investors.

The Board of Taxation is due to deliver findings to the Government from their review of Digital Asset Taxation by 31 December 2022. During the review, there has been plenty of debate about the current taxation issues faced in the crypto space and how crypto taxes could be treated differently in the future. 

What's next?

The industry has accepted that broader regulation is coming, a change many have embraced to provide businesses with greater certainty in their Australian operations. The Australian Securities and Investments Commission (ASIC) has also flagged crypto assets as part of its "core strategic projects" for the 2022-2023 financial year, highlighting the need for additional consumer protections, especially following the collapse of crypto yield providers in the middle of 2022.

With Australia's cautious approach to crypto regulation on the back of the token mapping announcement, Australia's blockchain and digital asset technologies must remain competitive internationally to encourage and retain innovation.
How Australia Is Leading In Crypto?
 

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How Australia Is Leading In Crypto?

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