For cryptocurrency enterprises, Australia has always been a neutral and stable jurisdiction. According to the "Australian Crypto Survey 2023" by Swyftx, the largest exchange in Australia and New Zealand, Australia has the highest cryptocurrency adoption rate among developed countries at 23%, surpassing the United States' 16%. Despite having a population of just over 20 million, the high adoption rate of cryptocurrencies in Australia may warrant attention to the Australian market.
01 Who are the regulatory authorities?
The main regulatory authority is the Australian Securities and Investments Commission (ASIC).
ASIC is Australia's financial regulatory agency, responsible for overseeing the Australian financial markets and financial services industry to ensure fair, transparent, and efficient operation of the market, protect the interests of investors, and maintain the stability of the financial system. ASIC is also responsible for regulating 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 products, as well as the 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 in cryptocurrencies (see ASIC Information Sheet 230 (INFO 230)). Additionally, ASIC has expressed expectations for the regulatory status of certain cryptocurrencies (see ASIC Information Sheet 225 (INFO 225)).
02 What is the regulatory framework?
It is primarily enforcement regulation rather than legislative regulation.
Currently, Australia does not have separate legislation for cryptocurrencies. Although there have been legislative amendments to accommodate the use of cryptocurrencies, these amendments have primarily focused on transactional relationships (such as issuance and exchange processes) and activities involving cryptocurrencies, rather than the cryptocurrencies themselves. While government departments have been engaged in discussions and consultations on regulating financial services providers and stablecoins, ASIC has taken high-profile enforcement actions against cryptocurrency enterprises. The focus of these actions has been on suspected unlicensed operations and investor protection. However, the "enforcement regulation" approach adopted so far has strengthened calls for legislative clarity. Although there is currently no legislation treating cryptocurrencies as a separate legal field, this does not prevent their inclusion within the existing framework of Australian law.
03 What are the specific regulatory rules?
MinterEllison provides an overview of common scenarios.
Buying and Selling Cryptocurrencies
The buying and selling of cryptocurrencies are regulated under Australia's existing financial services regulatory regime.
Entities conducting financial services in Australia must hold an Australian Financial Services Licence (AFSL) or obtain an exemption. Service providers of cryptocurrencies that constitute financial products will be required to obtain an AFSL and comply with relevant disclosure requirements. The Corporations Act 2001 (Cth) defines "financial products" and "financial services" very broadly, and ASIC has indicated in INFO225 that cryptocurrencies with similar characteristics to existing financial products will trigger related 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 category of financial products, all of which are regulated under an AFSL.
Similarly, foreign financial services providers conducting financial services in Australia must hold an AFSL, unless exempt. They may even need to establish a presence locally (i.e., register with ASIC and establish a branch) or set up a subsidiary.
Even if the buying and selling of cryptocurrencies are not regulated under the Corporations Act, they are subject to the Australian Consumer Law, which prohibits misleading or deceptive conduct towards consumers. Therefore, caution must be exercised in cryptocurrency sales materials to ensure they do not contain false information and do not mislead or deceive buyers.
Taxation of Cryptocurrencies
The tax implications for cryptocurrency holders depend on the purpose of acquiring or holding cryptocurrencies.
Under the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022, the Australian Taxation Office considers cryptocurrencies as assets held or traded, rather than currency. In simple terms, if cryptocurrencies are traded frequently to profit from market fluctuations, this typically requires payment of personal income tax. If they are held for the long term, capital gains tax is usually payable.
As for the Goods and Services Tax (GST), since July 1, 2017, the supply and acquisition of cryptocurrencies are not subject to GST. Therefore, consumers using cryptocurrencies only incur GST once (when purchasing other goods and services using cryptocurrencies), as opposed to twice (when purchasing cryptocurrencies and using them to buy other goods and services).
Declaration for Entry and Exit
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) requires individuals and businesses to report when carrying physical currency exceeding 10,000 Australian dollars (or its foreign equivalent) into or out of Australia. This requirement is limited to "physical currency." Although the 2017 amendments to the Anti-Money Laundering and Counter-Terrorism Financing Act addressed certain aspects of cryptocurrency transfers and exchanges, they did not expand the scope of border restrictions under anti-money laundering/counter-terrorism financing regulation.
Initial Coin Offerings (ICOs)
While ASIC acknowledges the challenges of regulating ICOs, it does not prohibit ICOs.
If the tokens issued are not classified as financial products, ICOs are subject to the Australian Consumer Law. If the tokens issued are classified as financial products, ICOs are subject to the Australian Securities and Investments Commission Act 2001 (ASIC Act). However, regardless of whether financial products are involved, the issuer must always ensure that the ICO does not involve misleading or deceptive conduct or statements. Due to the potential for changes in the design of ICOs during their lifecycle, legal advice should be sought to ensure ongoing compliance.
Cryptocurrency Mining
Currently, Australia has not issued any bans on cryptocurrency mining.
However, the tax treatment of cryptocurrency mining operations can be relatively complex and depends on various factors, including but not limited to whether GST is registered, and the specific circumstances of each mining operation.
04 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 enterprises. However, due to the lack of clear legislation, there is still uncertainty in Australia's regulation of cryptocurrencies. Enterprises need to closely monitor regulatory developments and enforcement actions to ensure the legality and sustainability of their operations.
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