Australia has always been a neutral and stable jurisdiction for cryptocurrency businesses. According to the “Australian Crypto Survey 2023” conducted by Swyftx, the largest cryptocurrency exchange in Australia and New Zealand, Australia has the highest cryptocurrency adoption rate among developed countries at 23%, surpassing the United States’ 16%. Despite its population of just over 20 million, the high adoption rate of cryptocurrencies in Australia makes it a market worth paying attention to.
The regulatory authority in Australia for cryptocurrencies is primarily the Australian Securities and Investments Commission (ASIC). ASIC is the financial regulatory agency responsible for overseeing Australia’s financial markets and financial services industry. Its role is to ensure fair, transparent, and efficient market operations, protect the interests of investors, and maintain the stability of the financial system. ASIC also regulates financial services and businesses related to virtual currencies. In 2021, ASIC clarified its expectations for cryptocurrencies as underlying assets in Exchange Traded Products (ETPs) and other investment product bases, as well as its expectations for market operators, retail fund operators, listed investment entities (including listed investment trusts and listed investment companies), and Australian Financial Services License (AFSL) holders trading cryptocurrencies (see ASIC Information Sheet 230). In addition, ASIC has expressed its expectations for the regulatory status of certain cryptocurrencies (see ASIC Information Sheet 225).
The regulatory framework in Australia for cryptocurrencies is primarily focused on enforcement regulation rather than legislative regulation. Currently, Australia does not have separate legislation for cryptocurrencies. While there have been legislative amendments to accommodate the use of cryptocurrencies, these amendments have mainly focused on transactional relationships, such as the issuance and exchange processes, and activities involving cryptocurrencies rather than cryptocurrencies themselves. However, government agencies have been engaging in consultations and discussions regarding the regulation of financial service providers and stablecoins.
ASIC has taken a proactive approach in enforcing regulations on cryptocurrency businesses. The emphasis has been on addressing unlicensed operations and investor protection. However, the use of enforcement regulation without clear legislative guidelines has prompted calls for legislative clarity. Although there is currently no legislation treating cryptocurrencies as a separate legal area, this does not prevent their incorporation into the existing legal framework in Australia.
Specific regulatory rules for cryptocurrencies in Australia can be illustrated through common scenarios.
1. Buying and selling cryptocurrencies: The buying and selling of cryptocurrencies are regulated under Australia’s existing financial services regulatory system. Entities conducting financial services in Australia must hold an Australian Financial Services Licence (AFSL) or obtain an exemption. Cryptocurrency service providers that constitute financial products will be required to obtain an AFSL and comply with relevant regulatory and disclosure requirements. The Corporations Act 2001 (Cth) defines “financial products” and “financial services” broadly, and ASIC has stated in INFO225 that cryptocurrencies with similar characteristics to existing financial products will trigger relevant regulatory obligations. Depending on the specific circumstances, cryptocurrencies may constitute interests in managed investment schemes (collective investment vehicles), securities, derivatives, or fall under the broader definition of financial product categories, all of which are regulated under an AFSL.
Foreign financial service providers conducting financial services in Australia also need to hold an AFSL unless exempted. They may even need to establish a presence in Australia by registering with ASIC and setting up a branch or establishing a subsidiary.
Even if the buying and selling of cryptocurrencies are not regulated under the Corporations Act, they are subject to regulation under the Australian Consumer Law, which prohibits misleading or deceptive conduct towards consumers. Therefore, caution must be exercised in cryptocurrency sales promotional materials to ensure they do not contain false information and do not mislead or deceive buyers.
2. Taxation of cryptocurrencies: The tax implications for cryptocurrency holders in Australia depend on the purpose of acquiring or holding cryptocurrencies. According to the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, the Australian Taxation Office treats cryptocurrencies as assets held or traded, rather than as currency. In simple terms, if cryptocurrencies are traded frequently for profit from market fluctuations, it generally attracts personal income tax. If they are held for long-term investment, capital gains tax may apply.
Regarding the Goods and Services Tax (GST) in Australia, the supply and acquisition of cryptocurrencies have been exempt from GST since July 1, 2017. As a result, consumers using cryptocurrencies are no longer subject to double GST (when purchasing cryptocurrencies and when using cryptocurrencies to purchase other goods and services), but only pay GST once (when using cryptocurrencies to purchase other goods and services).
3. Reporting when entering and leaving Australia: Currently, Australia does not require the declaration of cryptocurrencies held when entering or leaving the country. The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act) stipulates that individuals and businesses must report when carrying physical currency of AUD 10,000 or more (or its equivalent in foreign currency) when entering or leaving Australia. This requirement is limited to “physical currency” and although the Anti-Money Laundering and Counter-Terrorism Financing Act was revised in 2017 to address certain aspects of cryptocurrency transfers and exchanges, it did not expand the scope of anti-money laundering/regulatory measures at the border.
4. Initial Coin Offerings (ICOs): ASIC acknowledges the challenges in regulating ICOs but does not prohibit them. If the tokens issued are not classified as financial products, ICOs are subject to the constraints of the Australian Consumer Law. If the tokens issued are classified as financial products, ICOs will be subject to the ASIC Act 2001. However, regardless of whether they involve financial products, ICO issuers must always ensure that their ICOs do not involve misleading or deceptive conduct or statements. Due to the potential changes in the design of ICOs throughout their lifecycle, legal advice should be sought to ensure ongoing compliance.
5. Cryptocurrency mining: Currently, Australia has not issued any bans on cryptocurrency mining. However, the taxation treatment of cryptocurrency mining businesses can be relatively complex and depends on various factors, including whether GST has been registered and the specific circumstances of each mining operation.
In conclusion, blockchain and cryptocurrencies are innovative technologies in today’s world, providing new possibilities for financial services and transactions. Australia, as a neutral and stable jurisdiction with a wide adoption of cryptocurrencies, offers a favorable environment for cryptocurrency businesses. However, the regulatory landscape for cryptocurrencies in Australia remains uncertain due to the lack of clear legislation. It is important for businesses to closely monitor regulatory developments and enforcement actions to ensure the legality and sustainability of their operations.
