Recently, Assistant Treasurer of Australia, Stephen Jones, announced the proposed digital legislation "Regulating Digital Asset Platforms" at the Australian Financial Review Cryptocurrency Summit. The proposal aims to require cryptocurrency exchanges to obtain a financial services license, outlining the Treasury's recommendations for digital asset platforms. Jones emphasized that these platforms would be required to hold an Australian financial services license, adhere to principles of fairness and honesty in service, provide dispute resolution processes, meet solvency and cash reserve requirements, and maintain financial records. Additionally, cryptocurrency exchanges and other digital asset platforms will bear the responsibility of supervising and intervening in market misconduct.
As of July 1, 2017, the Australian government implemented a policy of "double taxation" on cryptocurrencies. This meant that anyone using cryptocurrency for payments incurred the Goods and Services Tax (GST) twice: once when purchasing cryptocurrency and again when using it for goods and services exchange. However, starting from July 1, 2017, the buying and selling of cryptocurrencies no longer required the payment of GST, aligning their treatment with other financial products (though not recognizing Bitcoin as currency).
Historically, the Australian government has adopted a minimal intervention approach to cryptocurrency regulation. However, since December 2021, Treasurer Josh Frydenberg hinted at reforms in the industry, announcing the Morrison government's largest overhaul in 25 years. In the same year, the Australian government drafted reform proposals for regulating cryptocurrencies, soliciting industry opinions on the approach to creating a digital asset license and regulatory framework. Several reviews of the cryptocurrency and fintech sectors were conducted, each proposing expanded and clarified regulatory frameworks surrounding cryptocurrency and payments.
In March 2022, the Australian Treasury released a consultation paper on the proposed regulatory framework for crypto asset secondary service providers (CASSPrs), providing room for customized applications to address the nuances of crypto asset services. In the same year, the Australian Securities and Investments Commission (ASIC) also published its 2022-2026 enforcement plan, emphasizing that cryptocurrency assets are a focus of regulatory authorities.
In 2023, the Australian Senate Economics Legislation Committee formally considered the "2023 Digital Assets (Market Regulation) Bill" proposed by Senator Andrew Bragg. The bill aims to establish a digital asset licensing system and report requirements for the circulation of the Reserve Bank of Australia's digital currency (CBDC). The bill provides clear definitions for digital assets, digital asset exchanges, stablecoins, and sets out authorization requirements for digital asset exchanges, custody providers, stablecoin issuers, and disclosure requirements for Australian CBDC service providers. The legislation is planned to take effect on the day following the expiration of a six-month period from approval. The regulation of crypto assets largely depends on whether the assets are considered financial products. If the assets are financial products, they fall under the regulation of the Corporations Act and the Australian Securities and Investments Commission Act (ASIC Act). If the assets are not financial products, they are regulated under the Competition and Consumer Act (CC Act). Whether crypto assets are considered financial products depends on the purpose of the assets, as defined by section 763A of the Corporations Act.
It's noteworthy that the proposed digital legislation focuses on regulating exchanges, requiring them to comply with existing financial services laws rather than regulating individual tokens or cryptocurrencies. Specifically, cryptocurrency exchanges holding a total exceeding $5 million or any individual user holding over $1,500 in cryptocurrency will be required to obtain an Australian Financial Services License (AFSL) issued by the Australian Securities and Investments Commission (ASIC). These regulations will compel exchanges to adhere to strict standards, including transparent and fair service provision, management of conflicts of interest, information disclosure, submission of financial reports, and compliance with solvency and cash reserve requirements. Additionally, asset custody rules will be enforced to enhance consumer protection within the industry.
As the proposed digital legislation was rejected by the Senate Economics Legislation Committee, the Australian government extended public and industry consultation until December 1. The draft legislation for public comment is expected to be released in 2024. Once the rules are effective, cryptocurrency exchanges will have a 12-month transition period to adapt to the new regulatory framework.
Overall, the taxation of cryptocurrency assets in Australia is evolving, and crypto assets are facing progressively tighter policy regulations.
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