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What crypto’s continued exclusion from foreign currency taxation means for lawyers
Late last week, the Treasurer and Assistant Treasurer announced that cryptocurrencies would continue to be excluded from foreign currency tax arrangements under the Albanese government, meaning that tax lawyers and accountants are “likely to be busy”, says one partner.
Jerome Doraisamy
In a joint statement, Treasurer Jim Chalmers and Assistant Treasurer Stephen Jones said that a decision by the government of El Salvador to allow bitcoin as legal tender has the potential to create uncertainty about the status of crypto-assets such as bitcoin for tax purposes in Australia.
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As a result, the pair said, the federal government will move to clarify current arrangements in legislation that will mean crypto-assets will not be regarded as a foreign currency for tax purposes.
“Capital gains tax will continue to apply to crypto assets that are held as investments. This clarification will deliver a consistent tax requirement for crypto asset holders and will be backdated to 1 July 2021 for the avoidance of ambiguity following the decision by the government of El Salvador,” the statement detailed.
“This gives certainty and clarity at a time of volatility for crypto currencies. The government will continue to take a pragmatic and timely approach to its role in the rapidly-evolving digital currency landscape.”
Reflecting on the statement, Madison Marcus financial services partner Perry Hume (pictured) said that, in the current volatile economic environment, cryptocurrency investors would have the ability to claim realised CGT losses against any gains made against the same asset class.
“The announcement continues the working assumptions made by legal practitioners and tax practitioners operating in this space,” Mr Hume told Lawyers Weekly.
“The government has so far adopted a largely non-interventionist approach to the regulation of crypto currency generally. Whilst this is generally good for the crypto industry and its growth, it does not assist practitioners to confidently advise their clients in this area.”
The announcement continues the “regulation by policy” approach, Mr Hume continued, and is not yet reflected in legislation.
“A similar approach has been taken by ASIC and Treasury in the financial services sector – although a draft bill is expected this year.
“For tax lawyers and accountants, given the high level of depreciation and volatility of most crypto currencies during the financial year ending 30 June 2022, it is less likely that clients will have used cryptocurrency for personal use and thus be able to take advantage of the ‘personal use asset’ exemption,” Mr Hume advised.
“Practitioners are likely to be busy advising on capital losses and offsets experienced by their clients.”
