In October 2021, the Senate Committee on Australia as a Technology and Financial Hub issued long-awaited recommendations on how to regulate cryptocurrency. The 168-page final report summarizes 12 recommendations aimed at finding the right balance between building legitimacy rather than stifling innovation.
This is a landmark report that shows Australia’s apparent efforts to remain at the forefront of global crypto investment. Committee Chairman Senator Andrew Bragg believes that “Australia can be a leader in digital assets” and is convinced that it can, among other things, “compete with Singapore, the United Kingdom and the United States.”
Four important recommendations
First, the introduction of a number of new coding licenses and rules. For a long time, regulators around the world have tried to stick square nails (cryptocurrencies) into round holes (traditional financial regulation). This approach underestimates the fundamental differences that exist, as well as the potential of digital assets to change the world. This report explores the potential of cryptocurrency and requires a number of specially designed cryptocurrency licenses in Australia. It recommends a specific market-based licensing system for digital exchanges, as well as a single storage system for digital assets. The details will still need to be worked on, but if we get this framework right, it will create the legitimacy that the sector needs to become mainstream.
Second, the introduction of a decentralized autonomous organization (DAO) into Australian corporate law. This recommendation is very important because it shows that the Australian government is open to decentralized finance (DeFi) as well as crypto innovation. Wyoming is the only area I’ve heard of something like this, so it could put Australia on top. If approved, DAOs could provide a unique tool that could lead the Australian economy a decade into a decentralized future. However, the commission will also have difficulty obtaining approval, as changes to company law are very rare in Australia. If anyone can do that, it’s Senator Bragg.
Third, the improvement of tax rules for transactions between cryptocurrencies. A recent Finder study showed that more than 17% of Australians own cryptocurrency, the third highest number in the world. However, this growing group has had to deal with confusing tax rules at best. Historically, transfers between cryptocurrencies have been considered capital gains by the Australian Revenue Service. The new recommendation requires that tax be paid only if there is a “clearly identifiable capital gain or loss”. Again, the devil will be in the details, but active Australian crypto users could be the real winners.
Fourth, new tax incentives to encourage green mining of cryptocurrency. The commission recommends a 10% corporate tax deduction for crypto-mining companies that use renewable energy sources. This seems like a smart move to support two of Australia’s fastest growing industries: renewable energy and cryptocurrency. This will be especially important as the committee struggles to sign off on these recommendations amid COP26 and growing concerns about climate change.
Related: Cryptocurrency Bonuses and Unfair Taxes in the US
Three difficult cases
Deadlines for submitting recommendations to law. For now, these are just recommendations, and they deserve as much political will as there is to adopt them. As in other countries, politics in Australia is slow and nothing will change here. Senator Andrew Bragg is optimistic that he will be able to agree to all recommendations within 12 months, and I support him in that. His case can also be bolstered by the growing view that crypto innovation could be the voting winner for young Australians in the upcoming federal election, with nearly a third of Generation Z already owning crypto.
Implications for crypto companies in the run-up to the reform. If it takes a year for new laws to be introduced, there are still questions about what crypto companies can do in that time. Several requests requested a “safe harbor” from the regulations until the rules were finalized, but the commission did not explicitly recommend this. However, the trend has been identified and there is clear support for crypto innovation and a recognition of the need for new regulations and licenses. I would be surprised if we see a lot of regulatory action up to this point.
License specifications and tax proposals. Many of these recommendations were scattered in detail and it appears that the Australian Treasury will now take the lead on these matters.