Recommendation 6: Clarity for CGT
The Senate Select Committee Report into Australia as a Technology and Financial Centre's Final Report explores Australia's tax arrangements for digital assets with particular interest in Capital Gains Tax (CGT).
The recommendation comes from submissions detailing the rapid update in Decentralised Finance (DeFi) and the need to update Australia's taxation regulations to reflect this. The recommendation states:
The committee recommends that the Capital Gains Tax (CGT) regime be amended so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss.
Similar to other recommendations, the committee pointed to submissions that compare Australia with other jurisdictions, like Singapore, which has a more favourable digital asset tax regime. According to the report, a favourable tax regime may become instrumental in determining whether potential projects choose to reside in Australia.
Many submissions focus on the lack of clear taxation guidance from the Australian Taxation Office (ATO) when digital assets are held as an investment. This is because the nature of crypto trading means it is often difficult for taxpayers to correctly assess their CGT liabilities.
The deficiencies of Australia's CGT regulation with digital assets is compounded when considering newer DeFi digital assets. Many submissions noted a considerable barrier to DeFi adoption are the multiple taxation events that arise when a crypto-asset token interacts with DeFi protocol.
To remedy these issues, the committee recommends the CGT rules be amended so that taxable events only occur when digital transactions result in a clearly definable gain or loss. This is up to the Treasurer and the ATO to work with key players in the industry to develop changes and provide clarity.