Australia’s cryptocurrency tax laws contain some unfair provisions that will most often put crypto owners on the receiving end of huge tax burdens. These draconian tax laws also apply to tokens obtained via hard forks which has holders having to cough up substantial amounts in crypto tax payments.
Even companies that pay staff salaries in virtual currencies may find little incentive to do so given the additional burden it incurs at the end of the year.
Cryptocurrency Holder Forced to 500% Tax
According to Australian cryptocurrency news platform Micky, a cryptocurrency holder was forced to pay a 500% tax on his digital holdings. Adrian Forza of Crypto Tax Australia told Micky that the country’s tax law stipulates that the value of cryptocurrency used for tax purposes comes from the purchase price.
Thus, if an investor buys token X at $100 and the price depreciates to $10, the tax payment would be based on the $100 purchase price. Crypto tax in Australia stands at about 40% so that would mean paying a $40 tax on $10 worth of virtual currency.
Commenting on the situation, Forza declared:
That’s a really unfair outcome because he’s basically received cryptocurrency and the value has dropped significantly and now, he has to pay tax on money he doesn’t have. This is something they will have to change as it is unfair.
Given the 2018 bear market that saw prices plummet by more than 80 percent across the board, virtual currency bag holders in Australia must have been made to pay unfair taxes.
Usually, crypto tax laws for countries with such make it desirous to hold cryptocurrency for a long period of time. It is only in trading and making purchases that incur substantial tax implications.
Tax Laws Designed to Frustrate Crypto Investment
Forza also shed some light on other ridiculous provisions in Australia’s cryptocurrency tax regime. For one, the Australia Taxation Office (ATO) considers Ethereum Classic (ETC) to be the “original Ethereum” even though the cryptocurrency industry at large considers Ethereum (ETH) to be the original and ETC the fork.
The implication of this tax ruling is that ETH holders have to pay capital gains tax on 100% of their ether holdings since the ATO considers the purchase price to be zero. Here is where the ATO appears to be disingenuous because when it comes to forks, it considers tokens obtained during the chain split to be bought as zero price. Thus, when tax season comes around, holders have to consider the current price.
Another ridiculous tax law is one that subjects companies that pay employees in cryptos to “fringe benefits tax” to the tune of 47% on every dollar paid. This extra cost burden is most likely to disincentivize companies from paying their staff in bitcoin and other virtual currencies – a move which greatly hampers adoption.
Since the ATO flipflops on when crypto should be valued for tax, it would be better to create a situation where holders can offset their losses during a bear market against the gains earned during the previous boom market. That way, the entire tax framework doesn’t become obscenely burdensome on cryptocurrency owners and traders.
Another pain point is the refusal of the ATO to consider a fiat-in, fiat-out paradigm for its crypto taxation. Speaking to Micky, Jonathan Carley of DigitalX – a blockchain-based startup said that ATO will not adopt such a policy.
These anti-crypto tax laws could severely damage the advancement of virtual currencies in the country. Crypto and blockchain technology continue to be a popular emerging market down under with exchanges like Zebpay moving to the country.
Around the world, governments appear to be paying greater attention to crypto taxation especially with the current bull market in the hopes of earning internal revenue from traders. The U.S. Internal Revenue Service (IRS) says clear cut regulations are imminent.