The federal government has said it will implement the majority of the recommendations of a Senate committee report that called for major changes to the treatment of bitcoin and similar digital currencies.
A key recommendation of the Senate inquiry's report was that the GST treatment of bitcoin be changed to avoid the current ‘double taxation’ that occurs because of the Australian Taxation Office’s assessment that bitcoin transactions are currently a form of barter due to the definition of money.
The government has already said it will take action on the GST issue and Treasury has recently begun seeking public input on how to change the law.
The Senate inquiry’s report also recommended that the review of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, which commenced in December 2013, consider extending Australia’s AML/CTF regulations to digital currency exchanges (in a similar fashion to how conventional currency exchange businesses are treated).
In its public response to the committee report, that government indicated it supported the recommendation.
“Internationally, it is considered that the extension of AML/CTF regulation to include convertible digital currency exchanges would encourage innovation and investment by ensuring service providers have greater certainty and security in their dealings with digital currency businesses, while reducing the money laundering and terrorism financing risks associated with this emerging technology,” the government’s response noted
“This approach has already been taken by a number of jurisdictions including the United Kingdom and Canada, and is in line with the recently published Guidance for a Risk-Based Approach to Virtual Currencies issued by the Financial Action Task Force, the international standard-setting body for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.”
“Australia’s review is considering these and alternative approaches to addressing the money laundering and terrorism financing risks posed by digital currencies,” it added.
(The government’s response to the Senate inquiry is dated 5 May, and the AML/CTF review's report had already been made public by the time the response was released.)
The AML/CTF review backed changes to Australian law to make sure that digital currencies are covered by the country’s anti-money-laundering regime.
Bitcoin and similar currencies currently sit outside the regime’s scope. Although the relevant legislation mentions ‘e-currency’, e-currencies are defined to include digital money backed either directly or indirectly by precious metal, bullion or a thing.
Bitcoin is “backed by an algorithm rather than a physical thing,” the review noted, and hence is not captured by the definition.