Australia set for cryptocurrency rules overhaul following Senate inquiry

Tax rules should be overhauled to be more friendly for the likes of bitcoin while digital currency exchanges could face tougher regulation, under proposals to shake up the industry.

Senator Andrew Bragg is confident he can gain support from Treasurer Josh Frydenberg to implement the 12 recommendations. Picture: NCA NewsWire/Gary Ramage

Australian’s tax rules should be overhauled to be more friendly for the likes of bitcoin while digital currency exchanges could face tougher regulation including licensing, under recommendations handed down by parliamentary inquiry into the nation’s nascent cryptocurrency industry.

The Senate committee has also recommended the government offer businesses that mine cryptocurrency in Australia a company tax discount of 10 per cent if they source their own renewable energy to do so, this is to offset environmental concerns surrounding the energy intensive mining of cryptocurrencies.

The recommendations, tabled to parliament on Wednesday, will lead to higher adoption and sensible regulation of crypto according to the committee’s chair, Liberal senator Andrew Bragg, who said he’ll be pushing for the mooted regulations to be adopted as official government policy.

The move comes as bitcoin prices have been rallying, nearing all time highs set early this year.

The digital currency rose to as much as $US64,309.33 overnight, CoinDesk data showed, before pulling back to $US63,951.

New figures from Finder show Australia has the third-highest rate of crypto adoption in the world, with around 18 per cent of the population owning some form of cryptocurrency including bitcoin.

“What we’ve done is make some hard recommendations, I didn’t want to kick the can down the road,” Mr Bragg said. “Right now the space is basically totally unregulated, so we wanted to create a set of policies and regulations to help the industry mature.”

Digital currency exchanges will be subject to minimum requirements relating to capital adequacy, auditing and responsible person tests under the recommendations, and the government will establish a new Decentralised Autonomous Organisation (DAO) company structure.

Projects previously set up under DAO infrastructures did not clearly fall within any of Australia’s existing company structures, Mr Bragg said.

The committee also recommended that the Anti-Money Laundering and Counter-Terrorism Financial regulations be clarified so that they are fit for purpose and do not undermine innovation, and that the Capital Gains Tax (CGT) regime will be amended so that digital asset transactions only create an event when they genuinely result in a clearly definable capital gain or loss.

Australia’s capital gains tax rules will be overhauled to be more friendly for the likes of bitcoin. Picture: Getty Images

Treasury will also lead a policy of review of the viability of a retail Central Bank Digital Currency in Australia under the recommendations, coinciding with work already underway by the Reserve Bank.

“The committee further notes the evidence of the RBA that while it has an open mind as to whether a case could be developed for a retail or general use CBDC, it does not currently see a public policy case for implementing a retail CBDC in Australia,” the report said.

Mr Bragg said he was confident he could gain support from Treasurer Josh Frydenberg to implement the 12 recommendations.

“He‘s been a great supported of FinTech and a great supporter of innovation, so I’m confident, but I’m not counting my chickens,” he said. “One of the issues here is the research shows that the Liberal Party hasn’t always done as well with young people as well as we should have, and I think these issues are very important to young people.

“I‘ve been shocked about the anti-competitive approach that the majors have deployed. They were trying to eliminate screen scraping, they tried to wipe out buy now, pay later, they’ve de-banked a lot of people. There’s been a lot of anti-competitive behaviour going on and we’re not here to represent those interests, we’re here to represent the people who have been denied better options.

“We want Australia to be an easy and safe to do business, and in the past we haven‘t always been the fastest to capture new trends. This is a good opportunity for us to get ahead.”

Rebecca Schot-Guppy, the chief executive of FinTech Australia, welcomed the recommendations, which include a new escalation point with regulators to help manage de-banking. “As we have pointed out earlier, hundreds of fintechs have been debanked with no form of recourse. As we have argued in the past, we believe this behaviour is anti-competitive,” she said.

“We also welcome further moves from the government to create a licensing regime and regulate the crypto exchanges. This will provide certainty to those within the sector, and allow for its growth within Australia.”

Meanwhile Asher Tan, the CEO of crypto wallet and exchange platform Coinjar, said “we applaud Senator Bragg and his team for the forward-thinking approach they’ve taken with this proposed regulatory framework.

“In our view, the report strikes a commendably optimistic tone that sees blockchain technology as the historic innovation that it is – and one that comes with matching opportunities and risks.

“As one of the first crypto exchanges in the world to be officially registered with the UK’s Financial Conduct Authority, we’re pleased to see an even more expansive approach taken here with separate licences for both crypto marketplaces and custodians.”

Originally published as Australia set for cryptocurrency rules overhaul following Senate inquiry