Cryptocurrencies are a relatively new form of currency, and governments worldwide have been scrambling to identify the best ways to regulate them. Some have taken a scorched earth approach and essentially made Bitcoin and other digital currencies illegal. Others have gone in the opposite direction and made crypto their national currency.
Australia sits somewhere in the middle of these extremes. Cryptocurrency is well and truly legal in Australia, however, the nation could be more progressive when it comes to regulation. Most banks and financial institutions are wary of virtual assets and they cannot be used as legal tender. This article will dive into everything Australians need to know about the rules and regulations surrounding crypto in the country.
Is Crypto Legal In Australia?
Digital currencies such as Bitcoin are legal to buy, trade, possess, and sell in Australia. They can even be used to purchase goods and services at compatible vendors, store value, or participate in decentralized finance. However, the Australian government does not consider digital currencies to have equal standing compared to fiat currencies such as the Australian Dollar, and instead are treated as property or assets.
Australians are welcome to use national, regulated, and unregulated crypto exchanges to build their digital currency portfolios. However, some cryptocurrency platforms in Australia will have limitations based on their financial offerings. For example, unregulated platforms are typically unable to accept fiat (AUD) deposits and withdrawals.
Though not everything crypto-related is legal in Australia. Binary options, a form of gambling that allows investors to bet on whether an asset will increase or decrease in value, are currently banned. The Australian Securities and Investments Commission has also heavily restricted crypto-based products for retail investors. This includes Exchange-Traded Funds (ETFs), which the body only legalized in October 2021.
The Australian Government's Stance On Crypto
The Australian government and other major institutions are considered "neutral" by most agencies in the industry. Generally, the country is supportive of blockchain innovations and implementing the technology into various businesses. Instances include:
- ANZ (one of Australia's largest banks) is creating its own institutional stablecoin.
- Commonwealth Bank of Australia (CBA) was the first Aussie bank to roll out a crypto brokerage service for its customers.
- The Australian Stock Exchange (ASC) is replacing CHESS with distributed ledger tech to manage investor data.
- Rio Tinto, an Australian-based mining company, uses the blockchain to trade iron ore with international economies.
- The Australian government plans to invest $1.2bn AUD between now and 2030 into blockchain tech.
Similarly, regulatory bodies have yet to meddle too much in Australian residents' access to crypto-based services. Financial instruments like derivatives and margin trading are regulated more tightly but are still available to most Australians. Although this may seem positive, it leaves a large regulatory grey area for crypto investors and developers to navigate.
For example, offshore gambling using Bitcoin (or other cryptos) isn't technically legal in Australia. But it also isn't illegal. The lack of steadfast regulation is part of cryptocurrency's philosophy. But it also hurts public sentiment, exposure, and adoption in Australia.
How Does Australia Classify Crypto?
Cryptocurrency is not recognized by any Australian financial institution as "real" money. The Australian Tax Office (ATO) and RBA have been clear that cryptocurrency should not be classified as a "currency". Instead, digital currencies like Bitcoin are considered "property". Therefore, it's treated the same way as a car, house, or collectible. If an investor decides to sell or make a profit from trading cryptocurrency, they will usually be subject to the Capital Gains Tax (CGT).
The guidance on classifying cryptocurrency is constantly evolving as the Australian government tries to optimize its policies. For example, the most recent national budget (October 2022) announced that crypto issued by the government or Central Bank Digital Currency would be treated as foreign currencies. Meanwhile, Bitcoin and other independent digital currencies will remain as property.
How Are Cryptocurrency Exchanges Regulated In Australia?
For a while, Australia didn't have any specific guidelines for regulating cryptocurrency exchanges. It wasn't exactly the wild west, but the rules about what services these businesses could and couldn't offer residents were opaque. Since cryptocurrency's "legalization" in 2017, the regulations have become a little more transparent. The government and relevant financial bodies are constantly reviewing the industry and updating their rules.
The most significant regulatory requirement of crypto exchanges operating in Australia must register with the Australian Transaction Reports and Analysis Centre (AUSTRAC). Any exchange that wants to directly offer AUD deposits and withdrawals must be registered with AUSTRAC. Exchanges that aren't regulated can only accept cryptocurrency transfers. As a business or financial service provider, exchanges must adhere to several rules AUSTRAC implements. These include:
- Identifying and verifying customers' identity under a process called Know-Your-Customer (KYC).
- Managing and storing all transaction records.
- Complying with Anti-Money Laundering (AML) and Counter-terrorism Financing (CTF) requirements.
- Reporting any suspicious customer activity to AUSTRAC.
Since February 2020, the Australian Federal Police reported they had seized over $600 million in cryptocurrency used for illegal activity. Later that year, the Australian government cracked down on crypto exchanges offering privacy coins to combat this. Digital currencies such as Monero and Verge were delisted from the most popular Australian platforms, such as CoinSpot and Swyftx.
How Is Cryptocurrency Taxed In Australia?
Cryptocurrencies are treated as "property", or an asset class, for tax purposes. So, any time a disposal event occurs, an investor may be required to pay capital gains tax. A disposal event happens when:
- A cryptocurrency is sold to fiat currency
- A cryptocurrency is exchanged for another cryptocurrency
- A cryptocurrency is used to purchase a good or service (with exemptions)
- A cryptocurrency is gifted to someone else
The investor must pay tax if the sum of these throughout a financial year results in a profit. However, if the disposal event results in a loss in value, they can use this to offset other capital gains. If someone invests in cryptocurrency and leaves it in their wallet, they will not have to pay any tax on that asset. Even if it churns out millions in profits, there is no tax requirement until the digital currency is disposed of. Cryptocurrencies held for over 12 months are subject to a capital gains tax discount. Check out our full guide on calculating crypto capital gains for more information.
Figuring out how to navigate the world of cryptocurrency taxation in Australia can be challenging. This is why it's important always to consult a financial advisor that specializes in the asset class and provide them with accurate data using trusted and reliable crypto tax software.
The Future Of Crypto Regulation In Australia
Australia isn't the most crypto-friendly nation in the world. However, the country has acknowledged that distributed ledger technology has a major role to play in the future of global finance. The government is generally proactive in regulating emerging sectors (such as DeFi or NFTs). Multiple banks and major institutions have either integrated or are developing blockchain tech in the next few years.
Although Australia has fairly standard regulations for cryptocurrencies, they can quickly become confusing. As the country implements more specialist agencies and bodies to address the growing crypto ecosystem, these laws will likely become more transparent and well-defined.
This will be a major step toward the widespread adoption of digital currency among the Australian people. The Big Four banks releasing blockchain services and a standardized RBA-approved stablecoin are the likely next big steps for crypto regulation in Australia.
When Was Bitcoin Made Legal?
After the crypto industry started gaining traction among the broader public, the Reserve Bank of Australia (RBA) finally took official action. In 2017, the Government declared cryptocurrencies officially legal in Australia, and therefore subject to basic financial regulations. These include tax, Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) laws.
Previous to this, Bitcoin was never technically illegal in Australia but it wasn't exactly legal either in earlier years. In a 2013 interview, the head of Australia's Reserve Bank clarified, "There would be nothing to stop people in this country from deciding to transact in some other currency". So although the leading financial institution gave Bitcoin the green light, no regulatory framework was in place to make it officially legal.
Between 2009 and 2017, Bitcoin and other cryptocurrencies flew under the radar of policymakers. The biggest takeaway was that investors were not subject to tax for any profits they'd made. Considering that there were already plenty of Bitcoin millionaires by 2017, this was a pretty big deal.
Is Bitcoin Legal Tender?
No, Bitcoin is not a legal tender in Australia. Bitcoin and other digital assets cannot be used to pay a debt (like taxes or a mortgage) and are not backed by the government (the same way legal tender is). Cryptocurrencies can be used to purchase goods and services from businesses that accept them. While Australia has no plans to make Bitcoin legal tender within the nation, there is a much higher possibility of the RBA releasing an AUD-backed digital currency in the next decade.
The country is one of many restricting cryptocurrencies from being legal tender. There are presently only two nations in the entire world that accept Bitcoin as legal tender: El Salvador and the Central African Republic. To find out which countries have banned or made crypto illegal, read this article next.
Frequently Asked Questions
Yes, there are no laws that prevent Australian citizens from owning a cryptocurrency. However, certain exchanges have been forced to delist privacy coins (such as Monero). Residents can still acquire these assets via decentralized or unregulated exchanges.
Yes, cryptocurrencies such as Bitcoin and Ethereum were initially recognized and regulated in 2017. Australia treats crypto as an asset (or property), rather than as a traditional fiat currency.
Yes. In 2020, the Australian Federal Police rolled out a force that specializes in criminal activity using cryptocurrencies. If you are found to be using digital assets to launder money, purchase illegal goods, or otherwise commit a crime, the "government" can seize your crypto.
Understanding the muddy regulatory waters that cryptocurrency is submerged in can be rather overwhelming. The confusion around its legal status has been a massive barrier to entry into the Australian market. However, the government has slowly been improving its communication around cryptocurrency, how it is taxed and when and how it can be used.
Cryptocurrency is legal to be used in Australia in any manner, so long as it isn't associated with criminal activity. Exchanges that wish to offer fiat currency services are also legal but have to adhere to strict regulations from AUSTRAC. Australia is one of the most progressive countries in utilizing blockchain technology. While still lagging behind, the government's stance on cryptocurrency is steadily gaining ground.