The Federal Government has introduced into Parliament the Treasury Laws Amendment (2022 Measures No. 4) Bill 2022 aimed at, among other things, clarifying the tax treatment of digital currencies and CBDCs.
This latest step follows, Australian Treasurer, Jim Chalmers's announcement in June that the Labour government planned to introduce new tax legislation into Parliament in response to El Salvador's decision to recognize Bitcoin as legal tender.
Following a short consultation conducted in September, the Government has now introduced the legislation incorporating the proposed changes and the bill has been referred to the Senate Economics Legislation Committee for review. It appears the draft bill itself is largely unchanged from the version that went out for consultation in September.
The proposed amendments are intended to ensure that Bitcoin, which has been recognized as legal tender in El Salvador, continues to be treated as a digital currency (and not foreign currency) under tax legislation. This means that tax payers will not be able to benefit from any preferential tax elections for foreign currency in relation to Bitcoin. Interestingly, the explanatory memorandum to the bill asserts the need for such a change in circumstances where Bitcoin might now be considered a form of money.
A less well published aspect of the bill is the Government's decision to exclude CBDCs from the definition of digital currencies. As a consequence of this change, CBDCs issued by foreign governments will be considered a form of foreign currency, whereas private digital currencies and stablecoins will not be.
The stated intention of the new bill is to preserve the existing tax treatment of Bitcoin for the 2022 financial year given a potential risk to government revenue. This is underlined by the retrospective nature of the bill.
The Government's decision to move ahead with the 'Bitcoin tax' bill is perhaps precipitous in circumstances where the Board of Taxation's broader review of the tax treatment of digital assets and transactions remains pending. The Government's narrow policy objective reflects a perception that digital currencies remain a form of speculative investment. It is perhaps a missed opportunity to consider the emerging use and promotion of digital currencies, including stablecoins, as a means of payment in the digital economy.