Bitcoin is not a foreign currency in Australia, despite El Salvador adoption

Last Updated: 28 October 2022

The Australian government’s federal budget still describes bitcoin as a ‘digital asset’ rather than a foreign currency. Therefore, in terms of tax rules, it also does not fall under the standards of foreign currency.

Tax rules

This clarification comes in response to El Salvador’s move last year. Because the Central American country was the very first to make bitcoin a legal tender, it ensured that other countries would (or could) view it as foreign currency.

The federal budget was released on 25 October. In it, the government states that bitcoin falls under the “current tax treatment of digital currencies”. That means it will be subject to capital gains tax if one holds it as an investment.

“This measure removes the uncertainty that follows the El Salvador government’s decision to use bitcoin as legal tender and will be retroactive to income years that include July 1, 2021.”

Tax specialist Danny Talwar tells Cointelegraph that El Salvador’s move has had little impact on the views of the Australian Taxation Office (ATO) and the Ministry of Finance.

Capital gains tax

According to him, they have not hesitated to tax bitcoin in a different way from what they have always done:

“The tax rules for foreign currency in Australia involve revenue-based treatment, not capital-based. Since 2014, ATO guidelines have stated that crypto assets are not foreign currency for tax purposes, but CGT assets for investors.”

CGT stands for capital gain tax, or in Dutch: capital gains tax. In the Netherlands, by the way, you don’t have to worry about this with your tax return. Bitcoin belongs to box 3, for which the reference date of the financial year is sufficient.

By comparison, the general tax rate for profits from foreign currency investments is 23.5%. For bitcoiners, this would have been a lot more advantageous.

Reportedly, Central Bank Digital Currencies (CBDCs) do come under the foreign currency rules. Before this eAUD is launched into the market by the Reserve Bank of Australia (RBA), we will also be quite some time later.

A pilot is expected to be launched in the middle of next year.

  • Ivan Brightly

    Ivan Brightly is a leading cryptocurrency analyst and author with over 5 years of experience in the blockchain and digital asset space. He previously served as a senior analyst at a major cryptocurrency hedge fund where he led quantitative research and trading strategy development.

    Ivan holds a Master's degree in Finance from the London School of Economics and a Bachelor's in Computer Science from Stanford University. He is frequently invited to speak at fintech and blockchain conferences worldwide on topics spanning cryptocurrency trading, blockchain technology, and the future of digital assets.

    Ivan's commentary has been featured in several major finance and technology publications including Forbes, Bloomberg, and CoinDesk. He is considered one of the most insightful voices analyzing new developments in the cryptocurrency and blockchain industry.

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