The Government, in a joint media release on 22 June 2022 by the Treasurer and the Assistant Treasurer made statements pertinent to this article. Read our updated comments here.

In the absence of a comprehensive definition of ‘foreign currency’ in the Australian tax legislation the ATO and Australian courts have interpreted ‘foreign currency’ to be currency issued or recognised by an overseas sovereign state.

We previously reported on the uncertainty created for Australian taxpayers as a result of this interpretation in light of El Salvador and The Central African Republic recognising bitcoin as legal tender during FY 2022.

In the leading, pre cryptocurrency, case of Leask v Commonwealth [1996] HCA 29, Brennan CJ said that currency “is issued under the laws of [a] country”. The ATO quoted Leask in Taxation Determination TD 2014/25 but did not appear to focus on the “issued” requirement. Nor did McCabe DP in the AAT case of Seribu Pty Ltd v FCT [2020] AATA 1840 that considered Bitcoin. McCabe DP said that currency must be “issued or recognised by a sovereign state.” (Underline added)

In TD 2014/25 the ATO said that Bitcoin was not a foreign currency as Bitcoin was not “recognised and adopted by the laws of any other sovereign State”. After El Salvador recognised Bitcoin the ATO announced that “[w]e're aware of El Salvador's move to make Bitcoin legal tender. The ATO considers Bitcoin to be a capital gains tax (CGT) asset, and not a foreign currency.”

While the ATO announcement did not say as much, it appears that “recognition” by a foreign sovereign state is, of itself, not enough.

With 30 June 2020 quickly approaching taxpayers and advisors have been left wondering what the tax treatment of cryptocurrency is for FY 2022. However, the Government, in a joint media release on 22 June 2022 by the Treasurer and the Assistant Treasurer has confirmed:

Crypto currencies will continue to be excluded from foreign currency tax arrangements under the Albanese Government.

The Government is proposing to introduce legislative reform, backdated to 1 July 2021, in respect of foreign currency. We expect that under the reform the definition of foreign currency will be changed to specify that foreign currency must be issued by an overseas sovereign state (rather than recognised).

Therefore, for FY 2022 the position for taxpayers is: capital gains tax will continue to apply to cryptocurrency investments. This position may differ depending on your use of the asset and your intention for holding or disposing the asset. As a result, the asset may be:

• taxed as trading stock; or

• deemed to form part of a business or commercial transaction with an intention of profit.

We have discussed this treatment of cryptocurrency in further detail here and here.

For more information on cryptocurrency and taxation or for general business law advice, please contact:

Laura Spencer
Senior Associate
M 0436 436 718 | T +61 3 9611 0110
E: lspencer@sladen.com.au

Daniel Smedley
Principal | Accredited Specialist in Tax Law
M +61 411 319 327 |  T +61 3 9611 0105
E: dsmedley@sladen.com.au

Neil Brydges
Principal Lawyer | Accredited Specialist in Tax Law
M +61 407 821 157 | T +61 3 9611 0176
E: nbrydges@sladen.com.au