Introduction
The Australian government is heavily looking into regulatory approaches regarding digital currencies. The Senate reviewed relevant agencies, completing its inquiry into the issue and explored the risks and opportunities being presented through the advent of cryptocurrencies in 2015. By then, the Australian taxation office had presented a ruling that suggested the taxation of transactions involving digital currencies. Following the fact that cryptocurrency is a fundamental area of focus in Australia, this paper is set to discuss the extent to which the currencies are regulated, individual views on effective regulation, possible reforms and the problems likely to arise in the future.
Summary of Literatures
According to Richardson, et, al. (2017), transactions involving cryptocurrencies are considered an “akin to a barter arrangement,” thus should involve taxation consequences. individuals who engage in cryptocurrency transactions are therefore advised to keep a record of the amount (in Australian dollars), date of transaction, the purpose of transactions and identity of the other party (Pollock, 2019). ASIC advises investors to check if an ICO issuer is a registered and licensed company in Australia (Chohan, 2017). According to AUSTRAC (2018), cryptocurrency is subjected to counterterrorism financing and anti-money laundering legislation. A similar aspect has been emphasized by The Law Library of Congress (2018). Irwin, & Dawson (2019) stresses on the introduction of internet-based approaches in the regulatory programs. According to Gregory (2018), cryptocurrency may lead to economic sabotage. A similar aspect has been supported by Ally, Gardiner, & Lane (2016); Anthony, Prasad, & Sadique (2018) and Chohan (2017).
Extent of Cryptocurrency Regulation in Australia
Cryptocurrencies are subjected to a set of regulations in Australia. Firstly, cryptocurrencies are subjected to taxation. The taxation of cryptocurrencies is guided by a set of rulings. According to the rulings, transactions involving cryptocurrencies are considered an “akin to a barter arrangement,” thus should involve taxation consequences (Richardson, et, al., 2017). According to the Australian Taxation Office, cryptocurrency transactions are neither foreign currency or money. The individuals who engage in cryptocurrency transactions are therefore advised to keep a record of the amount (in Australian dollars), date of transaction, the purpose of transactions and identity of the other party (Pollock, 2019).
Additionally, cryptocurrencies are considered as assets which invite tax expenses. In cases where goods and services are purchased for consumption, any capital that is gained or lost through the disposal of the bitcoin will be disregarded. Any item that is purchased by a business company is subjected to a tax equivalent to the arm’s length value of the item. The business organization shall also be liable for a BST fee which is calculated on the market value of the services and goods acquired. The BST fee is ordinarily equal to the fair market value of the bitcoin during the transaction period. Entities which engage in buying and selling of bitcoins as an exchange service are liable of taxation fee on any income gained excluding all the expenses incurred. The Senate committee also recommended GST consequences upon accepting digital currency as part of business as a strategic approach in preventing double taxation under the GST system.
Cryptocurrencies are also subjected to financial regulations and the protection of consumers. According to the ASIC Act of Corporations Act, cryptocurrencies are not considered financial products. ASIC’s Money Smart website provides plenty of information and data regarding cryptocurrencies. This information is significant in protecting individuals against trading of digital currencies. This information includes telling people about the fact that exchange platforms involving the exchange of digital currencies are not regulated thus all risks like hacking and failing of the system is not subjected to legal recourse. Also, digital currency is neither guaranteed by the government, nor bank thus fluctuates significantly over a short period including theft from hackers leaving an individual with little hope to regain the loses. This information by ASIC has played a significant role in protecting the consumers of digital currency. A separate page on the website provides important information about initial coin offerings (ICO). ASIC advises investors to check if an ICO issuer is a registered and licensed company in Australia (Chohan, 2017). This data is meant to make the investors aware that if the company is not registered, then the chances of government protection in case things go wrong are very minimal. Otherwise, there are also associated risk factors when dealing with registered companies. For instance, when ABC reported a loss of AU$1.2 million from more than 1200 Australians who had engaged in cryptocurrency, the ASIC commissioner was quoted saying that it is clear that the loss arose from scum thus investors should avoid investing unless they are ready to lose their funds.
Currently, cryptocurrency is subjected to counterterrorism financing and anti-money laundering legislation (AUSTRAC, 2018). The execution of this rule followed the introduction of a bill in parliament to include cryptocurrency exchange providers into the CTF/AML regulatory regime (The Law Library of Congress, 2018). The providers of cryptocurrency exchange are now regulated under the rules of FATF with a fundamental aim of reducing the risks associated with digital currency. All the digital currency exchange providers are expected to register at the Australian Transaction Report and Analysis Centre and execute a CTF/AML program. This registration is aimed at reducing money laundering and identifying and verifying the customers of the digital currency exchange providers (Koenraadt, & Leung, 2019). The providers are also required to report and make a record of suspicious transactions.
Response to the Current Cryptocurrency Regulation in Australia
Even though more efforts have been initiated by the Senate in regulating cryptocurrencies, the current regulatory environment is still not sufficient. Empowering individuals about the risks associated with digital currencies is not a solid solution to the problem because not everyone in Australia can access the ASIC website. Furthermore, a reliable solution should be implemented to reduce the risks available to the investors rather than addressing the issues to the public. The current generation is improving tactically as technology advances. Therefore, legislation should be accompanied by internet-based actions to promote safety to the laundering crisis in the cryptocurrencies (Irwin, & Dawson, 2019).
Reforms to Strengthen the Current Digital Currency Regulatory Environment
Following the fact that the current cryptocurrency regulatory environment is not favourable, a set of reforms is necessary to promote efficiency. Firstly, the government of Australia should ensure that the digital currency exchange providers pay a security fee which shall be responsible for compensating the investors in cases of money laundering and other theft issues presented to the government. This strategy will ensure that all the digital currency exchange providers strengthen the security of their platforms against money laundering. Additionally, the reform shall strengthen the hope of the investors in cryptocurrency.
Additionally, the government of Australia should initiate a program that will promote the online submission of the financial statements by the digital currency exchange providers. This strategy will enhance the effective taxation of digital currency exchange businesses. The strategy will also ensure the financial position of the platforms is assessed on an annual basis to tress the security of the consumers. If the financial position of the platform puts the investors at a higher risk of losing their funds, the platform should be dissolved by the government as an amount equivalent to the contribution and shares of the investors deducted as compensation.
Possible Future Problem
Cryptocurrency might lead to economic sabotage if care is not undertaken (Gregory, 2018). Usually, cryptocurrencies are associated with heavy profits and losses which reflect the currency of a country. The loss is usually compensated through taxation. However, improvised strategies should be imposed to promote effectiveness in the taxation process. Failure to initiate an effective taxation program shall ultimately lead to heavy losses to the economy (Ally, Gardiner, & Lane, 2016). For instance, the cryptocurrency agencies do not work in correlation with the banks in the country due to an ineffective regulatory system (Anthony, Prasad, & Sadique, 2018). Therefore, the central government of Australia may fail to effectively assess the accurate position of the national currency in relation to the foreign currencies which may negatively impact the economy. As the U.S dollar loss value due to the introduction of plenty of cryptocurrencies, centralization of the world economy is also impacted (Chohan, 2017). The national currencies shall be driven by the forces of demand and supply. In so doing, the international economy shall be out of control thus negatively impacting some economies at the expense of the others.
References
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Anthony Das, C., Prasad, K., & Sadique, M. S. (2018). Cryptocurrency a Bit unregulated? In International Conference on Business and Banking V (ICBB V), 7(2) 32.
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Chohan, U. W. (2017). Assessing the Differences in Bitcoin & Other Cryptocurrency Legality Across National Jurisdictions. Available at SSRN 3042248, 34(14) 40.
Chohan, U. W. (2017). Initial coin offerings (ICOs): Risks, regulation, and accountability.
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Irwin, A. S., & Dawson, C. (2019). Following the cyber money trail: global challenges when investigating ransomware attacks and how regulation can help. Journal of Money Laundering Control, (just-accepted), 13(71), 12-35.
Koenraadt, J., & Leung, E. (2019). The Impact of Regulation and Transparency in the Cryptocurrency Market. Available at SSRN, 12(24) 46.
Pollock, D. (2019). How Australia is becoming a Cryptocurrency continent: Markets. Regulations and Plans [online]. Retrieved from: https://cointelegraph.com/news/how-australia-is-becoming-a-cryptocurrency-continent-markets-regulations-and-plans
Richardson, M., Bosua, R., Clark, K., Webb, J., Ahmad, A., & Maynard, S. (2017). Towards responsive regulation of the Internet of Things: Australian perspectives. Internet Policy Review, 6(1).
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