How does the legal status of crypto assets in Australia compare with the approach taken in the rest of the world?
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1. How are crypto assets defined in your jurisdiction?
"Crypto assets" is a broad term used to refer to crypto tokens generally including cryptocurrencies, non-fungible tokens, and stablecoins. It has no settled meaning under Australian law.
Currently the Commonwealth Government has sought consultation on a singular definition which can be applied across all Australian regulatory frameworks. It is proposed that "crypto-assets" is to be defined as "a digital representation of value or contractual rights that can be transferred, stored, or traded electronically, and whose ownership is either determined or otherwise substantially affected by a cryptographic proof".
However, commentary has noted that the wording "representation of value" may not be appropriate (as not all tokens are linked to an underlying asset), nor is the phrase "contractual rights" (as digital assets may not seek to form contractual obligations) and a single definition for all purposes may not be feasible.
2. What is the legal status of crypto assets in your jurisdiction?
Crypto assets, not currently being a discrete category of asset, are subject to existing Australian laws which apply to more traditional types of property. Businesses advising or dealing in such assets need to ensure that they comply with Australian laws that apply to other assets.
3. Are crypto assets regulated in your jurisdiction?
Yes, whilst at present there is no holistic framework that regulates crypto assets, they are regulated by piecemeal regulations which apply to financial services, monetary assets, and consumer law generally. These regulations are drawn from the Corporations Act 2001 (Cth), which regulates financial products and services, the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 (Cth) (AML/CTF Act), and the Competition and Consumer Act 2010 (Cth).
4. If crypto assets are regulated in your jurisdiction, which key regulatory authorities are responsible for the regulations and their enforcement in your jurisdiction? How are they regulated?
The regulator of the Corporations Act 2001 is the Australian Securities & Investments Commission (ASIC), the regulator of the Anti‑Money Laundering and Counter‑Terrorism Financing Act 2006 is the Australian Transaction Reports and Analysis Centre (AUSTRAC), and the regulator of the Competition and Consumer Act 2010 is the Australian Competition & Consumer Commission (ACCC).
If a crypto asset is considered a financial product, the product provider must operate under an Australian Financial Services Licence which, amongst other obligations, requires licence holders to submit annual account and audit reports to ASIC. Limited exemptions from the licensing regime are available in some cases.
If the crypto project involves the provision of a designated service by a reporting entity with an Australia connection, the entity providing the service must enrol or register with AUSTRAC and have a program that specifies how they comply with their AML/CTF obligations.
Further, ASIC, AUSTRAC and the ACCC have the power to investigate breaches and institute civil or criminal proceedings under their respective Acts.
5. Have specific anti-money laundering measures been introduced in relation to crypto asset activities in your jurisdiction?
Since 2018 the AML/CTF Act regulates businesses offering digital currency exchange services between fiat currency and digital currency, however beyond this AML/CTF laws do not regulate crypto assets.
Following the 2021 Senate Select Committee report on Australia as a Technology and Financial Centre, there is ongoing consultation to reform the crypto asset regulatory framework, including how AML/CTF laws apply to crypto assets. One such proposed reform is to introduce a purpose-built AML/CTF regulatory framework for crypto assets that is not onerous and would promote business confidence.
6. How is the use of blockchain in the financial services sector regulated in your jurisdiction?
The use of blockchain is not regulated, but rather it is the product that uses blockchain technology that may or may not be regulated. For example, if the product qualifies as a financial product by falling under the definition of a security, derivative, or a managed investment scheme under the Corporations Act 2001, it is regulated by the Act as well as by the relevant regulator, ASIC.
7. How are crypto assets taxed in your jurisdiction?
Generally, both capital gains tax and income tax is applicable to crypto asset businesses and transactions. As such, the Australian Tax Office's guidance is that a record of all crypto asset transactions must be kept and reported. More information on this point can be found here.
8. Are crypto assets recognised as a type of property in your jurisdiction?
Based on common law principles, crypto assets are generally treated as a form of personal property.
Particular statutory regimes, however, will not always treat crypto assets as property. For instance, under the Personal Property Securities Act 2009, which regulates security interests in personal property, "currencies" are treated as personal property, but these are defined as an "authorised...medium of exchange by the law of Australia or of any other country". As such, only crypto currencies which are recognised as legal tender would qualify. However, given that the Personal Property Securities Act was not drafted with crypto assets in mind, there is much debate over how different categories of crypto assets might fit into the Act.
9. How does your jurisdiction deal with the application of property laws to intangible assets and conflicts of laws with other jurisdictions (for example, a crypto asset created by a company in jurisdiction A, one a server in jurisdiction B that is sold to a person in jurisdiction C)?
The law applicable to a particular asset will typically be the law of the jurisdiction where the assets are located. For crypto assets this might be where the crypto asset is stored (i.e., the location of the relevant server) but it might also be where the rights attaching to the crypto asset can be enforced.
10. Can smart contracts transferring ownership on a crypto asset be treated as legally binding in your jurisdiction?
A smart contract self-executing on a blockchain will not of itself be a legal contract. The legal effect of the smart contract will depend on the terms upon which the asset was issued and the arrangements between the parties to the transfer. Ownership will pass if there is a binding agreement to that effect between the parties. To be a binding agreement, the arrangement must satisfy all elements of contract formation, namely:
- intention to create legal relations, and
- certainty of terms
If these criteria are met, then the transfer will be legally enforceable.
11. Is it possible to take security over a crypto asset in your jurisdiction?
To take security over a personal asset in Australia, it is necessary to register an interest under the Personal Property Securities Act. The recognition of crypto assets under that legislation is not entirely clear (as noted in our response to question 8).
Assuming it is possible to register a security interest under the Act over a particular kind of crypto asset, to create the registrable interest, it will be necessary for the "owner" and the person taking security to enter into an effective Security Deed, which will be provided as supporting information when registering the security interest.
12. Does inheritance tax relief exist in your jurisdiction for situations where fluctuations in the market result in a beneficiary paying disproportionate tax?
Australia does not have inheritance tax.
13. Is there any forthcoming or proposed legislation in your jurisdiction relating to crypto assets?
Yes, currently the Commonwealth Treasury is seeking consultation on a new licensing regime for crypto asset secondary service providers.
It is envisioned that this licensing regime will sit alongside current Financial Services licensing requirements. The proposal is that the new licensing regime will regulate those who provide crypto assets to retail consumers which are not financial products. The proposed requirements of the new licence borrows heavily from existing Financial Services licensing requirements and requires, amongst other things, that providers:
- do all things necessary to ensure that services are provided efficiently, honestly, and fairly, and that any market for crypto assets is operated in a fair, transparent, and orderly manner
- maintain adequate technological and financial resources to provide services and manage risks
- have in place adequate internal and external dispute resolution systems
- take reasonable steps to ensure that crypto assets are not misrepresented or misleadingly described
- there must not be unsolicited real time offers of crypto assets to consumers – mirroring the financial product hawking provisions in the Corporations Act 2001
In building out this framework, the Commonwealth is seeking early feedback on the types of crypto assets and their classifications as part of a token mapping exercise. Commentators do envision that a more detailed mapping exercise will commence in due course.
14. Is there a supranatorial view on crypto assets in your region and if so, what is it?
The regulatory trend on crypto assets is outlined in the 2021 recommendations of the Senate Select Committee on Australia as a Technology and Financial Centre.
In addition to introducing a separate licensing regime for crypto assets as explored above, the Senate report recommended that:
- Australia recognise Decentralised Autonomous Organisations (DAOs) as a new category of organisation, taking inspiration from the approach of the U.S. state of Wyoming towards the issue
- capital gains tax laws be amended so that a taxable event only occurs when there is a genuine capital gain or loss as currently, a taxable event may be triggered when a crypto asset is swapped, burned, accessed, or staked when a crypto asset operates within a project - even though there is no material change in ownership. The Senate Report also made note of the comparatively lower tax rate of competing neighbours such as Singapore when considering how Australia can attract talent and investment
- that Australia actively investigates the possibility of a Central Bank Digital Currency to keep pace with global developments, in particular with countries like China which is in advance stages of testing its "digital yuan". The Senate Report strongly encouraged that Australia maximises any potential benefits in this area.
15. Is there anything else that you think is unusual or different about how your jurisdiction treats crypto assets or dealings in crypto assets?
With the recent change in Commonwealth Government, it is expected that there will be a greater focus in developing Australia's technology sector. Such focus may generate further support behind building a world-leading regulatory framework for crypto assets. Further to the points raised in the previous question, the Senate Report recognised that building a clear and attractive regulatory regime is instrumental in attracting crypto asset projects to Australia and identified depository and custodial functions of crypto projects as an area of opportunity considering Australia's large and well-established custodial services market.
Find the full Terralex Cross-Border Guide to Crypto Assets here.
Photo by Uriel SC on Unsplash.
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