A senate inquiry has recommended changes to taxation laws, licensing and regulatory regimes to encourage digital and crypto-asset businesses to set up in Australia.
- A senate committee has found the regulation of cryptocurrency in Australia is inadequate
- Tax discounts and a new licensing regime are among the committee’s key recommendations
- If passed into law, the industry believes Australia could become a digital innovation hub
The Select Committee on Australia as a Technology and Financial Centre was set up to look into ways to regulate crypto and digital assets, which are currently largely unregulated.
The committee made 11 recommendations that included new regimes for market licensing for digital currency exchanges (DCEs), custodial and depository services, and changes to anti-money laundering and counter-terrorism financing guidelines so they were “fit for purpose”.
The inquiry heard the crypto and digital assets industry had limited regulatory oversight despite some exchanges managing billions of dollars in trades a year.
Currently the only requirement to operate a DCE is to register with the anti-money laundering regulator AUSTRAC, which was described in the inquiry as having a “light touch”. AUSTRAC does not deal with investor protections.
In response to the industry’s calls to scrap capital gains tax (CGT) for digital currency trades, the committee recommended that CGT only be applied “when there is a clearly definable capital gain or loss” when a trade occurs. However, it did not state what the threshold to trigger the taxation should be.
There was also a recommendation for a 10 per cent tax discount to be applied to businesses that sourced their own renewable energy to “mine” cryptocurrency.
The committee chair, Liberal senator Andrew Bragg, said he believed the recommendations struck the right balance between encouraging innovation and protecting consumers.
Despite the looming federal election, Senator Bragg said he wanted the proposals legislated within 12 months.
“I’m concerned about the brain drain and the loss of good people really, because you’re already seeing Australian crypto markets seeking licences offshore,” he said.
Report welcome but ‘light on detail’
Aaron Lane from the RMIT Blockchain Innovation Hub said the report was forward thinking and an important first step.
“The longer we leave it, the more the more we fall behind, particularly the US kind of crypto-friendly jurisdictions locks like Singapore,” Dr Lane said.
“There is some urgency about it.”
Nick Abrahams, from Norton Rose Fulbright, said the report did not contain enough detail.
“The report didn’t deal in enough detail with the issue of how do we regulate digital assets … And so what the report did was to really kick the can down the road with that and said [it] is going to be a token mapping exercise,” he said.
Venture capitalist Mark Carnegie welcomed the report but had his doubts about whether its recommendations would be implemented.
“The speed with which we’re trying to actually implement regulatory change and the speed with which this technology in this environment is changing are just from different universes,” he said.
Decentralised autonomous organisations a ‘game-changer’
The industry is most excited by the committee’s recommendation for the federal government to establish a new decentralised autonomous organisation company structure.
“This is a big one. If legislated, these will be the most significant reform to corporate law in two decades,” Dr Lane said.
Decentralised autonomous organisations (DAOs) are common law partnerships, syndicates or unincorporated associations whose activities and investment decisions are co-ordinated by code or smart contracts.
Currently, DAOs and other blockchain projects with decentralised governance structures are not recognised within existing regulatory categories under Australian law.
Caroline Bowler, the CEO of digital currency exchange BTC Markets, said the recognition of DAOs would be a game-changer for the industry.
Ms Bowler said DAOs were the fundamental underpinning of Defi, or decentralised finance.
Wyoming in the United States legally recognised DAOs this year, and it has fast become a hub for digital asset businesses.
“DAOs are a whole new paradigm, a whole new way of thinking about organisational structures. It is really quite ambitious for Australia to take this on,” she said.
“It would really disrupt financial services, big banks will have real competitors in the room, and consumers will have choice,” she said.
The committee did not make any recommendations to stop banks and other financial services companies banning cryptocurrency businesses.
Instead, it wants the relevant agencies to act on setting up due diligence requirements for banks and a clear process for businesses that have been de-banked to seek recourse.
“My view is we shouldn’t be forcing banks to bank any particular business or person, but what we need to do is to address the issues and take the excuses off the table [with a new licensing system for crypto and digital asset businesses],” Senator Bragg said.
The report also did not recommend laws be changed to allow financial advisers to give advice on cryptocurrency, which is something submissions to the inquiry had called for.
“If you’re a sophisticated investor you can get all the advice you want in the world. And if you’re a retail investor, you’re absolutely unable to obtain any sort of decent financial advice because any regulated financial adviser is not allowed to advise on cryptocurrency,” Mr Carnegie said.