Cryptocurrency in Australia: Regulations & laws

Is cryptocurrency legal In Australia?

Cryptocurrencies: Legal, treated as property

Cryptocurrency exchanges: Legal, must register with AUSTRAC

In Australia, cryptocurrency, digital currencies, and cryptocurrency exchanges are legal. In addition to this, Australia cryptocurrency regulations  and laws are also progressive. The legal status of cryptocurrencies in Australia means that they are subject to the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF 2006), section 5 and associated rules. Accordingly, Bitcoin, and cryptocurrencies that share its characteristics, are treated as property and subject to Capital Gains Tax (CGT). Cryptocurrencies have previously been subject to controversial double taxation under Australia’s goods and services tax (GST): the change in their tax treatment is indicative of the Australian government’s progressive approach to the cryptocurrency regulation.

In 2021, the Australian Taxation Office (ATO) stepped up its enforcement of CGT reporting violations. Under the rules, where the ATO detects a reporting violation regarding a profit derived from a cryptocurrency transaction, it may collect a penalty of 75% of the outstanding tax liability – on top of the original tax (and interest). 

Australia cryptocurrency exchange regulations

Australia’s cryptocurrency regulations require exchanges to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) in compliance with the AML/CTF 2006 Part 6A – Digital Currency Exchange Register. The regulations require entities acting as exchanges, or providing registrable exchange type services, to identify and verify their users, maintain records, and comply with government AML/CTF reporting obligations. The CEO of AUSTRAC maintains the Digital Currency Exchange Register and unregistered exchanges are subject to criminal charges and financial penalties.

In May 2019, the Australian Securities and Investments Commission (ASIC) issued updated regulatory requirements for both initial coin offerings (ICOs) and cryptocurrency trading. Similarly, in August 2020, Australian regulation forced many exchanges to delist privacy coins, a specific type of anonymous cryptocurrency.

While progressive, Australia’s efforts to regulate cryptocurrency exchanges have sometimes had unintended adverse effects. In imposing its licensing regime on exchanges, AUSTRAC previously prompted many Australian banks to close the accounts of cryptocurrency service providers. With a de-banking trend emerging as a result of compliance fears, AUSTRAC clarified that the AML/ CFT Act does not require banks to terminate their business relationships with cryptocurrency exchanges. AUSTRAC chief executive Paul Jevtovic added that AUSTRAC considered disruptive technology, such as cryptocurrency, necessary for Australia’s business sector to keep pace with its international competitors. The clarification was welcomed by the Australian Digital Currency Commerce Association (ADCCA).

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Future cryptocurrency regulations in Australia

In late 2021, Australian Federal Treasurer Josh Frydenberg announced plans for sweeping payment reforms that would have consequences for the cryptocurrency industry. The plans include a new, dedicated licensing framework for Australia cryptocurrency exchanges that will enhance regulatory protection for the purchase and sale of crypto assets. The regulations will also be extended to businesses that hold crypto assets on behalf of customers. 

In addition to the Australia cryptocurrency licensing regime, the Treasury announced a consultation on possibilities for an Australian central bank digital currency (CBDC). Although the Reserve Bank of Australia has stated that there is no ‘strong policy case’, it has nonetheless begun development on an Australian CBDC in order to keep pace with advances on the global fintech landscape. 

Australia cryptocurrency regulations typically demonstrate a fast moving approach. In announcing the planned reforms, Australia’s Treasury set out a series of regulatory milestones that it would be aiming to achieve by the end of 2022. In addition to the development of a dedicated licensing regime, in 2022 Australia is aiming to receive a new framework for the taxation of digital assets, map the risk landscape of existing cryptocurrencies, examine the potential incorporation of Decentralized Autonomous Organization (DAOs) into Australian financial regulation, and receive a joint report from the Treasury and the RBA on the feasibility of the proposed CBDC. 

While Australia’s regulatory approach to cryptocurrency has been proactive, AUSTRAC has pointed out that risks remain. In January 2022, AUSTRAC chief executive Nicole Rose issued a warning that almost 400 currency exchanges operating in Australia were not endorsed as safe for retail investors by the regulator. AUSTRAC points out that the current registration system does not necessarily cover consumer protection and may give some customers “a false sense of security.” 

Australia’s pattern of proactive cryptocurrency regulation reflects a continued effort to provide a clear operational framework for crypto businesses going forward. However, revelations about the ongoing risks of cryptocurrency products and services will undoubtedly affect the way AUSTRAC approaches future regulation and enforcement – and will likely lead to increased scrutiny and a tightening of AML/CFT controls across the board.