In KPMG’s submission to the Board of Taxation’s review of the tax treatment of digital assets and transactions, the firm made a number of recommendations in support of additional regulation in the space.
Alia Lum, partner, tax policy and regulatory engagement lead at KPMG Australia, said crypto-assets are in an ongoing state of evolution and it is important to ensure that the tax framework remains appropriate.
“KPMG is supportive of additional regulation in Australia to support investor confidence and provide certainty, which in turn will ensure that Australia retains its competitiveness and ability to attract investment,” Ms Lum said.
“Specifically, we consider that the tax treatment of crypto-assets should not be left to existing ordinary tax principles. Instead, either a specific statutory regime or some other statutory framework should be legislated to provide clarity and ensure tax outcomes are appropriate.”
These new rules, Ms Lum believes, should be based on the characterisation of digital assets, in alignment with the token mapping classification being undertaken by the government.
KPMG’s submission added that, due to the rapidly evolving nature of digital assets, there should be some degree of flexibility for regulators to adapt quickly. It also proposed that “transactions be taxed in alignment with other transactions of a broadly similar character”.
“For example, gains and losses from digital currencies and debt-like assets should be, by default, on revenue account, while gains and losses from non-fungible tokens (NFTs) and equity-like assets should be on capital account subject to the intention and business of the taxpayer,” the submission said.
“These outcomes will not be commercially or economically appropriate in all circumstances or for all taxpayers; hence, additional rules may be required in limited situations to dictate an alternate tax treatment (akin to the managed investment trust (MIT) capital account election) and to allow for changes in the character of the token or transaction (such as rollovers).”
Ms Lum said that guidance from the Australian Tax Office (ATO) has so far been “insufficient”, which she chalked up to “uncertainty in the application of existing law and a lack of resources at the ATO with the technical expertise needed to keep up with the rapidly changing digital asset economy”.
“In our view, the reliance on ATO website guidance is not conducive to taxpayer compliance and does not give certainty of tax outcomes. Therefore, our view is that the ATO must be sufficiently resourced to be able to provide further guidance to taxpayers and tax advisers in the form of binding rulings,” she said.
“Lastly, as noted above, the evolving nature and high degree of rapid change in the digital asset economy will require continual revision to ensure Australia’s tax regime can correctly accommodate each evolution.
“As such, Treasury, the ATO and the Board of Taxation should consider establishing a form of ongoing consultation with taxpayers and tax practitioners in order to stay abreast of changes as they emerge.”
