With the recent booms of Crypto currencies such as Bitcoin, Ripple, Ethereum and countless others, revenue authorities all over the world have been scrambling to stay educated and make sure they receive their fair share of tax revenue; however, this has proven more difficult than first anticipated. Through the attempts of the Australian Taxation office as well as other revenue authorities to provide a regulatory tax infrastructure for crypto currencies, two main issues have arisen, these being: how cryptocurrency should be treated as a tax entity and how to enforce taxation related to cryptocurrencies. The Australian government has fought these issues with amendments legislation and initiatives from the Australian Taxation Office, however I personally believe current initiatives from the Australian government are failing and do not provide clear regulation leaving Cryptocurrencies and their taxation requirements in that of a legal grey area and as a result being very difficult to police.
To understand why these issues have presented themselves we must first understand what a crypto currency is and how it works. Essentially crypto currency is a non-tangible, digital currency operating independently from central authorities, which utilizes cryptography in order to maintain security and anonymity.[1] This is achieved through technology known as blockchain, ‘blockchain acts as a pseudo-online LEDGER which is constantly accessed and modified by every user of a certain cryptocurrency, each “block” in the “chain” carries with it transactional data which prevents double spending through cryptography removing the need for a centralized server or system.[2] Today we see many variations and use of blockchain technology with such cryptocurrencies as Bitcoin and Ripple enabling users to participate in an unregulated market, with several digital assets (currencies), almost completely anonymously, which gives rise to issues regarding enforcing taxation on crypto currencies and as to whether cryptocurrencies are an asset or in fact a currency.
The Australian government and their tax counter part the Australian Taxation Office have attempted to tackle the growing issue of tax implications surrounding cryptocurrencies through various routes including forming a task force, amending legislation and employing regulation through AUSTRAC, however all methods, in my opinion, have failed to individually or collectively provide clarity to the legal and tax grey area surrounding crypto currencies.[3] At this current point in time cryptocurrencies such as bitcoin are considered to be an asset carrying with it capital gains tax implications however, dependent on the value of an individual’s crypto-assets it will either be classified as a personal use asset or an investment.[4] For crypto currency to be regarded as a personal use asset it must be “acquired and kept or used mainly to purchase items for personal use or consumption.”[5], meaning any amount of crypto currency used “as an investment, in a profit-making scheme or in the course of carrying on a business”[6] will be deemed not a personal use asset and as a result subject to capital gains tax. However, if capital gains arise from the disposal of personal use cryptocurrency assets that were acquired for a value lesser than $10,000, the transaction will be disregarded for capital gains tax purposes. Moreover, crypto currencies used in carrying on a business or paying wages will be taxed as ordinary income at an Australian dollar value equal to a ‘fair market value’ of the given crypto currency.[7] As for non-income related tax implications of cryptocurrencies, from the first of July 2017 GST is no longer paid on transactions directly related to acquiring cryptocurrencies with GST credits being offered to those who incurred extra costs as a result of paying unnecessary GST on the purchase and use of cryptocurrency.[8] As demonstrated this current method of taxing cryptocurrencies is somewhat effective in regard to tackling tax implications surrounding crypto currencies, yet still lacking clarity and consistency however, countries such as Germany and Denmark have made moves in the right direction of ensuring proper taxation of crypto currencies.
As well as the Australian government countless other government bodies and their corresponding revenue authorities have been making moves to ensure cryptocurrencies are correctly taxed, with the two main issues I have identified being how cryptocurrency should be treated as a tax entity and how to enforce taxation related to cryptocurrencies. The issue of giving cryptocurrency a tax classification is the most pressing of the two before mentioned issues as this has large scale implications on the enforcement of taxing cryptocurrencies. This is clearly seen with countries such as Denmark not enforcing a capital gains tax on cryptocurrency transactions and Germany allowing for a 600-euro threshold on capital gains tax events relating to cryptocurrency whilst still charging a GST like tax on transactions with cryptocurrencies.[9] The tax treatment of cryptocurrencies in these previously mentioned countries comes as a result of cryptocurrencies not being classified as an asset and more that of a foreign currency, not only does this nearly completely remove the need to allocate resources in order to enforce capital gains tax on a non-tangible almost anonymous asset but heavily simplifies the system of which the tax payer is subject to. As for Australia and many other countries such as France and South Korea a capital gains tax is being enforced on the vast majority of cryptocurrency transactions that result in a profit for the individual.[10] However, this has proven difficult given the inherit anonymity surrounding cryptocurrencies and their technology with the Australian taxation office going as far as to dictate all cryptocurrency transactions be personally recorded as well providing powers to AUSTRAC to attempt to regulate cryptocurrency service provides and open a new channel of transaction information regarding cryptocurrencies. Furthermore, Australia and many other revenue authorities are reaching out to stakeholders in the cryptocurrency sector in order to gather information and work towards correctly taxing cryptocurrencies, yet the current system remains grey and progress has been slow.
Personally, I believe the measures being taken by tax authorities within Australia are insufficient and will encounter great difficulty policing the sector not only for the poor attempt at ‘getting their fair share’ through capital gains tax but the even poorer attempt at integrating the new concept of cryptocurrency with dated and non-specific tax law. The majority of initiatives taken by Australian and global revenue authorities have been aimed at ensuring the relevant government entity is able to introduce cryptocurrencies as a new stream of tax revenue with little thought on the tax payer themselves or the technology behind cryptocurrencies. As a result, tax payers dealing with cryptocurrencies are uncertain as to what their tax obligations are and are unwilling to work with revenue authorities given the lack of fairness and clarity of the current system as well as how it contrasts to those of countries like Denmark and Germany where cryptocurrency related taxation has been simplified with acknowledgment that cryptocurrency is a new concept that cannot be implemented into existing systems and laws. Moreover, given blockchain technology and the inherit anonymity that drives cryptocurrencies, policing taxation on cryptocurrencies will serve a near impossible task with the solution of mandating that cryptocurrency service providers, provide information to the Australian taxation office regarding cryptocurrency transactions being impossible in itself.
The policing of cryptocurrency will either be a very difficult or very easy task dependent on the type of tax a given government or revenue authority wishes to pursue as well as how cryptocurrency is classified as a tax entity. Those not pursuing a traditional capital gains tax such as Denmark who also implement cryptocurrency specific rules and regulations will find it easier to police mostly due to greater clarity of the law, proper classification of cryptocurrency, and not needing to attempt regulating an independent and decentralized market. As for those pursuing a capital gains tax such as Australia will likely find policing very difficult mostly due to the inherit anonymity of cryptocurrencies and the poor classification of cryptocurrency as an asset, causing an inability to track transactional data of cryptocurrency as well imposing rules and regulations poorly suited to cryptocurrency making it essentially impossible to successfully police cryptocurrency.
[1] ‘What is Crypto Currency?’, The Advertiser (Adelaide), 28 October 2017, 59.
[2] Usman Chohan, ‘Cryptocurrencies: A Brief Thematic Review.’ (2017) Bitcoin and Cryptocurrency Technologies.
[3] Duncan Hughes, ‘Tax Office Team To Tackle Crypto Cheats’, The Financial Review (Australia), 11 January 2018, 6.
[4] Australian Taxation Office, Tax Treatment of Crypto-currencies in Australia,
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] Australian Taxation Office, ‘Removing The Double Taxation on Digital Currencies’,
[9] Income Tax Act 2018 Germany s 8; Tax Control Act 2014 Denmark s 3.
[10] Christine Kim, Cynthia Kim, ‘South Korea Considers Cryptocurrency Tax As Regulators Grapple With Speculation’ The Financial Review (Australia), 13 December 2017
