Australia, a market leader in digital asset accommodation has contributed strongly to this space since the bull run in Q4 of 2017. This atmosphere is generally good for the blockchain and crypto industry as more enthusiasts look for regulatory friendly destinations to implement their ideas.
In addition, the premier Bitcoin Exchange Traded Fund is set to be launched by BDO, an accounting company that operates in Australia.
The Australian crypto regulatory space is however not perfect as one would imagine for a crypto-accommodating country. A recent report by Micky.com indicates that foreigners investing in digital assets within Ausralia’s market are faced with higher tax burdens. In fact, one of the investors was shocked when they realized that they had to pay taxes more than the amount of digital assets owned.
Crypto Tax Australia Director, Adrian Forza, said that one of the firm’s client was forced to pay taxes for digital assets 5 times bigger than his current portfolio. The situation came about as a result of Australia’s Taxation Office (ATO) requirement to declare digital assets upon receiving. Forza’s client had received an initial $250,000 worth of digital assets but the investment had fallen to $20,000 at the time of tax payment.
The digital currency proceeds owned by this client had been documented in January,2018 and were meant for development within the same industry. At that time, the market was still green after BTC hit the $20,000 but did not sustain this level past Q1. It therefore followed that the client now owes $100,000 worth of taxes while the investment is way below the taxed amount.
In Forza’s opinion, the scenario is a mess which does not take fairness into account;
“That’s a really unfair outcome because he’s basically received cryptocurrency and the value has dropped significantly and now he has to pay tax on money he doesn’t have. This is something they will have to change as it is unfair.”
Furthermore, Forza added that Australia ought to enhance its regulation to be more clear for the blockchain and cryptocurrency space. This is particularly for income generated from mining and investing activities within cryptocurrency.
Exclusion Of Hard Fork Coins In Regulations
According to Forza, the ATO made additional regulations that prospective crypto investors may have not come across. One of the distinguishing examples is the case of Ethereum Classic that is considered as the original cryptocurrency while Ethereum’s value is pegged at $0 for investors who held the coin at time of its fork. In simple terms, one would have to incur tax charges for the full amount received upon the sale of ETH. He further explained that;
“In the crypto space people think of Ethereum as the original, but the ATO has said that Eth is the one that changed and ETC kept all of its original properties.”
Similarly, folks who got proceeds for Bitcoin SV and BCH during hard forks are subjected to the same outcomes as that of Ethereum Classic and ETH. Digital coins that were received due to have forks have their base cost set at 0. However, crypto investors that have been holding their positions longer than 12 months are allowed to claim tax discounts.
Better Clarification In Cryptocurrency Tax Laws (Mining & Masternodes)
One of the issues that Forza has asked to be addressed is setting clearer regulations around the earnings from cryptocurrency. This mainly involves the income resulting to mining and masternode investments together with better definition of investing compared to crypto trades.
Jonathan Carley, DigitalX head of finance, also joined in the push for better regulations for firms to leverage digital coins even more. The blockchain firm head noted that reforming the Fringe Benefits Tax would allow employers to pay in digital coins.
The former BDO auditor noted that Australian firms that paid their employees in crypto coins were subjected to the Fringe Benefits Tax. This also affects the payment of services by firms who wish to leverage the lower transaction costs and time efficiency of digital assets.
Carley, said that this type of tax makes companies lose instead of gaining by transacting in crypto coins as they have to incur more than 40% costs on the dollar. The alternative of stablecoins is also as costly given that ATO does not qualify them as fiat currencies hence taxed as cryptocurrencies. He pushed for a better definition of the digital assets recommending that ATO classifies them as security tokens, cryptocurrencies and stablecoins.
In addition, Carley called for a tax structure that would enable offsetting losses incurred during a financial year with gains made in another time period. He supported the argument with 2017’s market run where investors made over 70% in profits but later lost more after they invested in different digital assets and the market went into a downtrend.
Regulation On Crypto Payments And Investments
The crypto assets ought to be defined according to their purpose, investing or payments, according to Carley’s view. He said that digital assets regulation would be much easier if they were categorized and users did not have to incur penalties for using the wrong coins.
Both Carley and Forza however do not believe that the popular suggestion in crypto forums to tax the coins as ‘fiat in, fiat out’ would be adopted by the ATO. Carley noted that in as much as this is preferred he does not see any signs by the ATO to accommodate such a strategy in crypto regulation.
Knowledge Gap In Cryptocurrency Laws
Forza stated that the most threatening challenge in crypto taxation was a poor understanding of these laws amongst the market players. Its main consumers are between the age of 25 to 40 and are yet to encounter an accountant in their lives.
One advice that Forza gave to crypto investors was to invest more in record keeping. This can be done through crypto services such as TaxToken, CoinTracking and using the Independent Reserve to calculate tax. Despite the slight variation in accuracy due to different exchange prices, Forza assures that this information would cut it for the ATO.
“The ATO only expects you to make a reasonable effort,” he noted.
Furthermore, crypto investors ought to download their statements from time to time as we have seen digital exchanges closing without notice in the past.
Australia’s Crypto Tax chat founder in Facebook also acknowledged that the gap in regulation understanding poses the biggest challenge in crypto. Users often do not understand the distinction between investing and trading digital assets. One is subject to tax once they convert crypto into fiat due to the taxable gains of exchanging one asset for another.