Cryptoasset tradingFiat currency transactions
What rules and restrictions govern the exchange of fiat currency and cryptoassets?
Other than customary tax obligations and criminal law prohibitions, there are no specific restrictions governing the exchange of fiat currency and cryptoassets for users. Businesses providing the service of exchanging of fiat currency for cryptoassets and vice versa must comply with the Anti-money Laundering and Counter-Terrorism Financing (AML/CTF) Act 2006 and be registered as a digital currency exchange.Exchanges and secondary markets
Where are investors allowed to trade cryptoassets? How are exchanges, alternative trading systems and secondary markets for cryptoassets regulated?
There are no regulatory restrictions on where investors can trade cryptoassets. Exchanges, alternative trading systems and secondary markets for cryptoassets are regulated under the AML/CTF Act. If a cryptoasset is a financial product, an exchange or market operator must have an Australian financial services licence (AFSL) with suitable authorisation.Custody
How are cryptoasset custodians regulated?
Cryptoasset custodians are regulated only if the cryptoassets stored by the custodian entity are financial products, in which case the custodian must obtain an AFSL with appropriate custodial and depository authorisation in accordance with Australian Securities and Investments Commission (ASIC) Regulatory Guide 1 and Regulatory Guide 133.Broker-dealers
How are cryptoasset broker-dealers regulated?
Businesses that give advice, deal or provide other intermediary services for cryptoassets that are financial products must hold an AFSL. ASIC requires that broker-dealers interacting with these types of cryptoasset must comply with Regulatory Guide 36 (‘Licensing: Financial product advice and dealing’).
Where the broker-dealer is exchanging cryptoassets for fiat currency (whether Australian or not) or vice versa in the course of carrying on a digital currency exchange business, the broker-dealer must also apply for registration as a digital currency exchange with AUSTRAC and prepare a compliant AML/CTF programme.Decentralised exchanges
What is the legal status of decentralised cryptoasset exchanges?
There is no specific legislation or regulations which consider the legal status of decentralised exchanges. Depending on the characteristics of the decentralised exchange, it is likely to still be captured under the AML/CTF Act as a digital currency exchange which is required to be registered with AUSTRAC. A decentralised exchange is likely to be an unincorporated association, as would almost all decentralised autonomous organisations.Peer-to-peer exchanges
What is the legal status of peer-to-peer (person-to-person) transfers of cryptoassets?
There is no prohibition on the exchange of cryptoassets on a peer-to-peer basis. The operation of a peer-to-peer digital currency exchange will require an AFSL if the tokens on the exchange are financial products. An exchange business must also be registered as a digital currency exchange if it facilitates the transfer of cryptoassets for fiat currency.Trading with anonymous parties
Trading with anonymous parties
For individuals, there are no explicit legislative or regulatory restrictions on trading cryptoassets with anonymous parties.
For businesses operating a digital currency exchange or providing another designated service, they must comply with the AML/CTF Act, which includes not providing a service to anonymous users. More than 250 global digital currency exchanges are registered in Australia.Foreign exchanges
Are foreign cryptocurrency exchanges subject to your jurisdiction’s laws and regulations governing cryptoasset exchanges?
The AML/CTF Act provisions relating to digital currency exchanges apply to anyone that provides a registrable digital currency exchange service to users in Australia.
Under what circumstances may a citizen of your jurisdiction lawfully exchange cryptoassets on a foreign exchange?
Subject to criminal laws prohibiting citizens from engaging in money laundering, terrorist financing or other criminal acts, there are no restrictions on a citizen participating in the lawful exchange of cryptoassets on a foreign exchange.Taxes
Do any tax liabilities arise in the exchange of cryptoassets (for both other cryptoassets and fiat currencies)?
Yes. The Australian Tax Office’s current views on the taxation treatment of cryptocurrencies are contained in four 2014 taxation determinations.
In Taxation Determination 2014/25, the commissioner expressed the view that bitcoin is not foreign currency for the purposes of Division 775 of the Income Tax Assessment Act 1997.
In Taxation Determination 2014/26, the commissioner expressed the view that bitcoin is a capital gains tax asset for the purposes of Section 108-5(1) of the Income Tax Assessment Act. This determination also sets out that:
- a disposal of bitcoin may give rise to a capital gains tax if the capital proceeds exceed the cost base of the tokens. Capital proceeds can include the market value of other property given for the disposal. There appears to be a somewhat widespread misapprehension in the marketplace that disposals between various cryptocurrencies do not give rise to gains and that only conversion to fiat currency crystallises a gain – which is incorrect;
- if the first element of the cost base of a token is A$10,000 or less and the token qualifies as a personal use asset, the gain may be disregarded under the personal use exemption; and
- in some cases, a gain on the disposal of cryptocurrency may be on income account (in which case the capital gain is disregarded). Taxpayers should refer to Taxation Ruling TR 92/3 for guidance on these points.
In Taxation Determination 2014/27, the commissioner expressed the view that bitcoin held for the purposes of sale or exchange in the ordinary course of a business is trading stock for the purposes of Division 70. This determination also sets out that:
- bitcoin held by a taxpayer carrying on a business of mining and selling bitcoin or a taxpayer carrying on a bitcoin exchange business will be considered trading stock; and
- bitcoin received as a method of payment by any business that sells goods will also be considered to be trading stock of that business where the bitcoin is held for the purpose of sale or exchange in the ordinary course of business.
In Taxation Determination 2014/28, the commissioner expressed the view that the provision of bitcoin by an employer to an employee in respect of their employment is a property fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986. The determination also sets out that:
- bitcoin is ‘any kind of property other than tangible property’ for Fringe Benefits Tax Assessment Act purposes. The provision of it to an employee is therefore a property fringe benefit; and
- bitcoin will not be a property fringe benefit if it is salary or wages.
Fringe benefits are taxed differently than salary or wages.
Law stated dateCorrect on
Give the date on which the above content is accurate.
15 November 2019.