These days, one cannot read the news without seeing updates on cryptocurrency. Having come across headlines about crypto, you might be wondering whether it is worth investing. This is why we've compiled this short guide to the cryptocurrency market and the latest cryptocurrency laws in Australia.
Cryptocurrency defined
Cryptocurrency and cryptocurrency transactions describe payments that are made digitally and are underpinned by blockchain technology. They are used to purchase or sell goods online as well as more cryptocurrecny. As it tends to grow in value, this type of currency is also often stored as an investment.
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Legal regulations
In 2017, cryptocurrency was legalized in Australia. This made Australia a key cryptocurrency space - however, there still are regulations in place to be aware of. When digital currencies were made legal, the government declared that they were subject to the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 (AML/CTF 2006). This is how those laws apply:
- Cryptocurrency exchange is the subject of the first set of laws. While these are legal, they do need to be registered with the Australian Transaction Reports and Analysis Centre (AUSTRAC) in line with Part 6A of the AML/CTF 2006 rules.
- Therefore, any entities acting as exchanges carry certain responsibilities. They must: identify and verify users of their services, keep tight financial records, register themselves as exchanges and comply with all AML/CTF reporting obligations.
- Not complying with those laws would leave your exchange open to criminal charges or fines. These laws are developed to prevent cryptocurrencies from being used for money laundering or to fund crime. As a provider, it would be your responsibility to identify and keep an eye on any suspicious activity.
In 2019, additonal regulations were introduced on initial coin offerings (ICOs) and trading. Specific forms of ‘privacy coins’, a form of cryptocurrency designed to be anonymous, were banned from listed exchanges.
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Consumer protection regulations
Another regulation specific to cryptocurrency exchanges is that they must now hold an Australian Financial Services (ASF) license. These digital currency providers are treated the same way as other financial service providers under Australian law.
Providers of digital currency and cryptocurrency startups are obliged to classify these currencies as financial products under the Corporations Act. This is to protect consumers of cryptocurrency networks - they can be assured that their crypto exchanges are done with licensed, regulated financial products. Things like a bitcoin network will be checked and regulated and consumers must be provided with relevant information like fee structures and guidelines.
Other cryptocurrency laws
Bitcoin and other digital currencies are defined as property for tax purposes. Virtual currencies as digital assets are subject to Capital Gains Tax, just as with any other property. To uphold the ability to send crypto anywhere in the world at any time, there is a regulation that service providers can exchange one cryptocurrency to another. Bitcoins and other cryptocurrencies can also be exchanged for other currencies, including traditional money.
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Crypto - how to get started?
If you do make the decision to invest in crypto, we recommend you find a licenced exchange to protect your purchase.
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Also, be aware of the Capital Gains Tax requirement when buying and selling, so that you don’t get an unwanted letter from the ATO.