Australian Federal Budget Reaffirms BTC Will Not Be Treated As Foreign Currency

The first federal budget under the government led by Anthony Albanese emphasized that Bitcoin (BTC) will continue to be treated as a digital asset and not taxed as a foreign currency.

This clarification comes in response to El Salvador’s adoption of BTC as legal tender in September last year, with the Australian government essentially ruling out a change in classification despite it being used as currency in El Salvador and the Central African Republic.

The federal budget was released on October 25 and states that BTC will fall under the “current tax treatment of digital currencies, including the tax treatment of capital gains, when held as an investment.”

“This measure removes uncertainty following the decision of the government of El Salvador to adopt Bitcoin as legal tender and will be backdated to revenue years that include July 1, 2021,” the budget document states.

Speaking to Cointelegraph, Danny Talwar, head of tax at Australian crypto tax accountants Koinly, suggested that El Salvador’s adoption of BTC has done little to sway the opinions of the Australian Taxation Office ( ATO) and Treasury, as they have always argued that Bitcoin should be taxed like other digital assets:

“Foreign currency tax rules in Australia follow an income-based treatment rather than a capital-based one. Since 2014, ATO guidelines have stated that crypto assets are not foreign currencies for tax purposes, but rather CGT assets for investors.

As such, as part of the classification of a digital asset, BTC investors will be subject to capital gains tax requirements when they make a profit on the sale of the asset.

Percentages vary as profits are generally included in income tax with a maximum rate of 45%. However, if the asset has been held for more than a year, investors benefit from a 50% reduction in their tax liability following a capital gains tax event.

In comparison, the general tax rate on profits from foreign currency investments is 23.5% and would represent a steep discount for investors if BTC were to be classified in this category.

“The Treasury released an exposure draft in September containing a bill to put this into law,” he added.

Talwar noted, however, that not all is set in stone for digital asset tax laws, as a “Taxation Council review of the tax treatment of digital assets more broadly is underway.”

When it comes to central bank digital currencies (CBDCs), these types of government-backed currencies will fall under “foreign currency rules.”

Related: Rushed ‘token mapping’ could hurt Australian crypto space – Finder founder

While the prospect of an Australian CBDC still seems a long way off, there have been recent developments in this area.

In late September, the Reserve Bank of Australia (RBA) released a white paper outlining a plan to conduct a pilot project for a CBDC called “eAUD” in partnership with the Digital Finance Cooperative Research Center (DFCRC).

A report on the pilot is expected to be released mid next year, and the RBA will be responsible for issuing eAUDs, while the DFCRC will oversee the development and installation of the platform.