Australia will not stop charging capital gains tax on crypto

In Australia, the newly elected Labor Party will keep capital gains tax on crypto in place, dashing hopes for local investors and businesses.

In its 2022-23 budget, announced on Wednesday by Treasurer Jim Chalmers, the government said it aimed to introduce legislation that would clarify and maintain the status quo.

Local industry participants had hoped the government – ​​elected in May – would change the way it approaches crypto in its latest budget announcement.

But the government instead doubled down on treating cryptocurrencies as investments. “This measure removes uncertainty following the decision by the Government of El Salvador to adopt Bitcoin as legal tender and will be backdated to fiscal years that include July 1, 2021,” the government said.

Only two countries formally recognize bitcoin as legal tender: El Salvador adopted it last year and the Central African Republic did so in April.

Under Australian law, digital assets are treated as property and profits on crypto transactions are treated as capital gains events, subject to an individual’s marginal tax rate. Like stocks, an investor can get a 50% discount when they hold a digital asset for more than 12 months.

Investors would not have received much tax relief anyway if Australia classified crypto as a foreign currency. Still, businesses may have been able to claim bitcoin losses on their balance sheets, Maryna Kovalenko, co-founder of crypto accounting firm Kova Tax, told Blockworks in an email.

“Clarity from the Australian government is always welcome, but there are many other areas of crypto-tax that warrant greater attention,” Kovalenko said.

These areas include tax implications for cross-chain bridges, where assets are transferred from one chain to another, as well as the timing of input income and consideration for the GST that applies to the sale of NFTs.

Tax regime ‘burys’ crypto business across Australia in paperwork

Businesses and other entities in Australia are required to report sales, price of crypto sold and closing balance for assets.

But many in the crypto space rely on interoperability, staking and on-chain products, including NFTs as part of their operations.

For some, like Simon Kertonegoro, CEO of Web3 platform MyMetaverse, current digital asset tax laws remain unsustainable, with local companies finding it increasingly difficult to chart a course forward.

“If you’re a business doing hundreds of transactions a day, you’re just buried in calculations,” Kertonegoro said when asked how the current situation affects NFTs and digital asset sales. The CEO proposed a cap on when a capital gains event is triggered, excluding transactions below $100.

It gets especially confusing when trying to figure out how much tax is due, especially when it comes to calculating gas taxes, he said.

A business that processes a transaction from a customer on Ethereum, for example, will naturally incur gas fees. During the time the process takes place, the price of ether can theoretically move significantly in either direction.

The business must then determine how much it lost or gained on the gas transaction compared to the value of ether when the business first purchased it. “It basically makes it impossible for small businesses to create on-chain products like NFTs,” Kertonegoro said.

However, in its latest budget, the government stated that capital gains tax will not be applied to digital assets issued by a public body, such as central bank digital currencies (CBDCs), which will be taxed as foreign currency.

Australia’s central bank is expected to complete its own CBDC pilot sometime next year.

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