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Australia to remove 'double tax' on digital currencies

Out-Law News | 22 Mar 2016 | 12:52 pm | 1 min. read

Australian's federal government has announced plans to remove a 'double taxation' treatment that affects digital currencies such as bitcoin. 

The imposition of Goods and Services Tax (GST) on digital currencies means that consumers who pay for goods using these currencies currently pay GST twice. 

In a report called Backing Australian Fintech, the government said it will "work with the industry on legisative options to reform the law relating the GST as it is applied to digital currencies". 

There are currently more than 600 digital currencies available, "with different protocols for transaction processing and confirmation, and with different approaches to the growth in the supply of digital currency units," the report said.

Removing the ‘double taxation’ treatment for GST on digital currencies and applying adequate anti-money laundering and counter-terrorism financing rules may allow the currencies to be developed and used in different ways in future, it said.

Blockchain technology in particular, as used in bitcoin, has shown promise as a way of regulating and recording transaction, the report said.

"Blockchain has attracted considerable interest in, and is currently being applied to, a number of areas within the international financial system and may revolutionise key services like international transfers between banks, equities clearing and settlement, and financial contracts," it said.

The technology "has the potential to radically simplify the way our market operates end-to-end, with significant benefits to investors, participants, regulators and government agencies", the government said.

Financial services technology expert Luke Scanlon of Pinsent Masons, the law firm behind Out-Law.com said that this shows the Australian government is willing to support fintech.

"This is just one element of the regulatory framework that the Australian government is seeking to address. There are plans to enable comprehensive credit reporting to boost peer-to-peer lending and to free up access to data for other online financial services."

"The government also hopes to develop a regulatory 'sandbox' to test out ideas, as the FCA is currently doing in the UK, and to increase its focus on cyber security," Scanlon said.

Banks have successfully trialled the trading of assets using five different blockchain technologies at once, it was reported last month.

Financial technology company R3 said that 40 banks participated in the trial which involved trading assets over distributed ledger technologies it managed but which were built by five different providers.

R3 said the trial "marked an unprecedented scale of institutional collaboration between the financial and technology communities" and said that it plans to further "test and develop applications based on distributed ledger technology for the financial services industry" in the coming months.