Chartered Accountants Australia and New Zealand, CPA Australia, Institute of Public Accountants and The Tax Institute have made a joint submission to the Board of Tax  in relation to the Review of the Tax Treatment of Digital Assets and Transactions Consultation Guide.

‘Digital assets’ is a broad phrase that captures blockchain-based tokens, email accounts, domain names, electronic files and statutorily created carbon emission schemes.  The standards for digital assets are constantly evolving, as are the array of activities possible with those assets. In some ways, digital assets are fundamentally different to the existing classes of ‘things’ in the tax law which are classified as property, currency and equity/debt interests.

The Joint Bodies consider that the current tax treatment of digital assets is generally unclear and not well understood by most taxpayers and tax practitioners. The application of the existing tax framework (which has not been designed with these kinds of digital assets and transactions in mind) results in significant interpretational complexity.

The current tax treatment of digital assets is unclear and not well understood

In the short term, the Joint Bodies consider that the priority should be changes that address pressing needs of taxpayers engaging in digital transactions and the inequitable outcomes in the taxation of digital assets in particular circumstances. These include: 

• appropriate methods for tracking, tracing and valuing gains and losses arising from digital asset transactions 
• the treatment of classes of digital assets without a traditional analogue, such as NFTs, liquidity pool tokens and wrapped tokens 
• the tax implications of common activities undertaken by taxpayers including staking, bridging, play-to-earn (P2E), game decentralised finance (GameFi) and decentralised finance (DeFi) 
• the application of existing tax law principles to the digital asset space, such as the revenue-capital dichotomy, timing, derivation of income, and whether a disposal event has occurred, and
• establishing a working group comprising the ATO, the Board, Treasury, professional associations, tax professionals and technology experts to collaborate on the design, implementation, and administration of a broader tax framework for digital assets and transactions to ensure the law is effective, efficient, practical, and fair. 

In the medium to longer term, the following actions should be taken:

• a holistic approach to regulatory frameworks governing digital assets and transactions more generally. This allows more specific laws and regulations relating to tax to be made based on the legal recognition and characteristics of such items where existing laws cannot cater for reform, and 
• driving greater engagement and collaboration between the ATO and taxpayers (and their advisers), to ensure that public guidance and the administration of the tax system more generally, are able to stay relevant and keep pace with technological advancements, as well as address the issues faced by taxpayers.