Crypto Regulation Shifts as Law Society Weighs In
The Australian cryptocurrency market has grown substantially, with 6.5 million Australians now holding digital assets, according to the online trading platform Independent Reserve. Bitcoin, the most established cryptocurrency, has climbed from roughly $5,000 in 2019 to $170,000 in recent years, attracting investors across age groups. Australians over 65 represent a particularly fast-growing segment, rising from 2 percent of crypto holders in 2019 to 8.2 percent today. The Australian Securities and Investments Commission has warned that cryptocurrency remains a “very high-risk” investment, yet the appeal continues to expand.
Regulators Attempt to Keep Pace
Steven Pettigrove, partner and head of the blockchain group at Piper Alderman, said advising clients on crypto assets requires at least a high-level understanding of blockchain technology and related concepts like staking, airdrops, and liquidity pools. He noted these transactions can carry significant and unintended tax consequences based on the ATO’s current interpretation of existing law. Pettigrove advised that taxpayers uncertain about how their cryptocurrency activities should be treated should consider seeking professional advice, especially when transactions are substantial or span multiple platforms.
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ASIC states the legal status of crypto assets depends on their structure and associated rights. Depending on circumstances, crypto assets may constitute interests in managed investment schemes, securities, derivatives, or other financial products, all subject to AFSL regulation. The Australian Law Reform Commission released a report in January 2024 titled Confronting Complexity: Reforming Corporations and Financial Services Legislation, containing 58 recommendations aimed at creating a more cohesive legislative framework. However, key proposals did not specifically address crypto assets as a distinct asset class.
The ATO views cryptocurrency as an asset held or traded for income tax purposes, distinct from money, shares, or foreign currency. Recent amendments to Australian tax legislation clarified that cryptocurrencies are not foreign currencies. Tax obligations depend on how residents acquire and hold their crypto. If an individual sells cryptocurrency as part of a business operation, it is treated as trading stock where gains are assessable and losses are deductible. Profits on disposal may also be treated as capital gains if the taxpayer satisfies conditions, including holding the cryptocurrency for at least 12 months before selling.
ATO Enforcement and Record-Keeping
Rob Thomson, the ATO’s Assistant Commissioner, said Bitcoin and other cryptocurrencies are generally capital gains tax assets for income tax purposes. Transactions involving crypto assets follow the same tax rules as other assets, with treatment depending on how the asset was acquired, held, and disposed of. Taxpayers must report gains or losses in their returns and keep records of every transaction, including the time, date, amount, and any associated fees or legal costs.
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He recommended that investors export their transaction records regularly, at least every three months, in case they lose access to their accounts. The ATO’s crypto asset data-matching program collects third-party data from Australian-based exchanges, enabling officials to compare reported information against what exchanges have on file. Penalty liability depends on a taxpayer’s behavior, knowledge of the tax system, and circumstances at the time of lodgment.
Victorian Case Could Redefine Property Status
A criminal case in Victoria may trigger a significant shift in how cryptocurrency is classified for tax purposes. In November 2024, William Noel Wheatley faced Melbourne Magistrates’ Court on charges of stealing 81.616 bitcoin from a cryptocurrency wallet discovered during an investigation into a drug and steroid-trafficking network in January 2019. The bitcoin was originally valued at $450,000 but would exceed $6.3 million today.
During the trial, magistrate Michael O’Connell said bitcoin was property akin to Australian dollars. According to Wheatley’s co-barrister, Adrian Cartland, this characterization could mean bitcoin would not be an asset subject to capital gains tax, and acquisitions and disposals would carry no tax consequences. The defence argued that bitcoin cannot be stolen since it is information rather than property, directly challenging the ATO’s definition of cryptocurrency as property since 2014. Cartland estimated this definition generated between $500 million and $1 billion in CGT and income tax over the following decade.
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O’Connell’s judgement stated that cryptocurrency ought to be treated as property, a finding the defence is appealing. “I find the argument that cryptocurrency has not yet reached a state that is comfortably analogous to a form of money unpersuasive,” the magistrate wrote. “In my view, that is sufficient to enable bitcoin to be characterised as property; that is, to use the words of the statute, as ‘other intangible property’, and I so rule.”
For tax practitioners and their clients, the outcome of this appeal could reshape how cryptocurrency holdings are treated under Australian law. Until and unless the case reaches the High Court, the existing Supreme Court decision in Victoria known as Blockchain Tech, which found that Bitcoin has the characteristics of property, remains the controlling authority. That ruling relied on a long line of common law precedents from other jurisdictions.
