The cryptocurrency industry said on Wednesday it was disappointed with Australia’s decision to continue treating digital currencies as assets for tax purposes, and not as foreign currency.
The government said in its budget announcement on Tuesday it would introduce legislation to enshrine the treatment of digital currencies such as Bitcoin as an asset.
This means investors would pay capital gains tax on profit from selling crypto assets through exchanges and when they trade digital assets.
The legislation removes uncertainty following the decision by El Salvador to adopt Bitcoin as legal tender in September last year, the Australian government said in its budget announcement.
Australia said, however, government-issued digital currency, or central bank digital currency (CBDC), would be treated as foreign currency.
Around 90% of the world’s central banks are now using, trialling or looking into CBDCs. Most don’t want to be left behind by Bitcoin and other cryptocurrencies, but are grappling with technological complexities.
Mitchell Travers, a former cryptocurrency exchange operator and founder of blockchain consultant Soulbis, said the budget change was unclear and appeared at odds with government testing into the viability of a CBDC.
“It would be ill advised for the government to really take an enforcement approach to the taxation of crypto assets in its early stages, especially considering the fact that the Treasury is also investing in trying to migrate the traditional technology systems that back our financial system over towards digital assets,” Travers said.
“It would be an ironic dichotomy if they were to enforce the taxation of digital assets and then launch their own CBDC without clear definitions of what token equals what tax treatment.”
The crypto sector is largely unregulated in Australia and the Treasury said in August it would prioritise ‘token mapping’ work, which will help identify how crypto assets and related services should be regulated.
El Salvador, which adopted Bitcoin as legal tender last year, was left facing heavy economic losses from the huge drop in crypto prices.
“I think they are taking a snapshot in time and making an assessment for a long time around what happened in El Salvador and the price of bitcoin,” said Caroline Bowler, CEO of BTC Markets, an Australia based cryptocurrency exchange, adding Australia will be left behind by other counties that are taking a more open-minded approach.
“Europeans are going to be pulling ahead, the U.K. now has a prime minister who is familiar with central bank digital currencies,” Bowler said. “All these trading partners will be pulling ahead of Australia unless we are looking at proportional, responsible regulation.”