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Wednesday, 18 October 2017
Page: 11221

Mr WATTS (Gellibrand) (16:02): I rise to support the Treasury Laws Amendment (2017 Measures No. 6) Bill 2017. Digital currencies and, in particular, decentralised cryptocurrencies have been one of the more mind-bending digital innovations of the past decade. Money supply is a difficult concept for a layman to get their head around at the best of times but, when you add a digital peer-to-peer exchange that relies on a decentralised encrypted ledger to record and manage currency transfers that is entirely independent of any financial institution or government, things get conceptually complicated very quickly. While currencies that operate independent to governments initially appealed most strongly to libertarians and cybercriminals, cryptocurrencies are now a relatively mainstream, if still new and evolving, digital innovation.

Venture capitalists are investing heavily into a range of fin-tech start-ups that rely on digital and cryptocurrencies. Indeed, the messaging start-up Kik recently raised nearly $100 million through an initial coin offering for its Kin token distribution. However, for far too long our laws have failed and have not kept up with this innovation. As a result, fin-tech innovators are currently hindered by the uncertain legislative environment surrounding the use of digital currencies. To support these industries, we need to make legislative changes to give businesses and consumers confidence and certainty. Dr Rhys Bollen, from the Monash University Faculty of Law, noted in his submission to the 2015 Senate inquiry into digital currency that:

… a well designed and proportionate legal and regulatory regime will support user confidence in, and therefore growth of, innovative payment systems such as virtual currencies.

At the moment, anyone purchasing a digital currency in Australia is technically liable for GST expenses on that purchase.

In the 2017-18 budget, the government announced a measure which removed the double taxation of digital currency. They argued that this measure was to prevent double taxation within our tax system, and this bill addresses that issue. Double taxation means not only that consumers are getting a worse deal financially but also that it's hard for digital currencies to be competitive as a means for exchange when compared to government-regulated currencies.

The total market capitalisation of cryptocurrencies continues to grow and recently surpassed $170 billion. Those traders and investors who use digital currency will now not be taxed for buying and selling through regulated exchanges, and this is likely to increase usage of and demand for digital currencies.

Labor supports the Treasury Laws Amendment (2017 Measures No. 6) Bill 2017. Schedule 1 to this bill amends the A New Tax System (Goods and Services) Act to ensure that supplies of digital currency receive equivalent goods and services tax treatment to supplies of money, particularly foreign currency. The explanatory memorandum for the bill outlines that supplies of money receive special treatment under the GST law, because generally a supply of money is not a supply within the meaning of the act. Therefore, entities that pay consideration in money are not liable for GST on the supply of that money. As money is a medium of exchange only, it is not consumed and is therefore not subject to GST. However, because bitcoin and other cryptocurrencies are not considered to be money in a legal sense, simply using them at the moment theoretically attracts GST. In some cases, entities will pay each other for an exchange of 'money', such as during debt trading and foreign currency speculation. In those situations, a service is being provided, and the exchange of money is not simply a medium of exchange. Exchanges of digital currencies as a medium of exchange are different in this respect. The United Kingdom and the US have not applied value-added taxes to digital currencies. The EU ruled that bitcoin was exempt from the VAT. This bill will bring our law into line with nations like these. This measure is supported by the fin-tech sector as well as by legal and tax professionals. States and territories have been consulted on the reform and have also agreed to it. Separate inquiries by the Senate Economics References Committee and the Productivity Commission in 2015 both recommended taking this step.

Other concerns regarding the use of digital currencies for criminal activity or money laundering can be addressed in separate reforms—namely, anti-money-laundering and counter-terrorism-financing initiatives. A definition of digital currency will also be included in the GST act. This definition includes a number of requirements which digital units of value must satisfy in order to be considered to be similar to state fiat currencies. The definition also includes the following criteria: digital units of value are made up of interchangeable units generally available to the public without any restriction on their use or future use as consideration; they are valuable only as a medium of exchange; they do not have value that depends on, or is derived from, the value of anything else; they do not have a value solely, or mainly, because they give an entitlement to receive, or direct the supply of, a particular thing; and they're not denominated in any current country's currency.

It's hard to quantify the size of the digital currency market in Australia, especially because it is restricted by this double taxation system. While bitcoin is the most prominent digital currency, there are currently more than 500 other digital currencies. Most of these alternative digital currencies were inspired by, or explicitly modelled on, bitcoin. Labor supports the measures to help Australian tax laws to come up to date with developments in financial innovation. These measures will help strengthen our growing fin-tech sector, which benefits all Australians and can be used by all businesses—particularly, innovative new businesses. It can be incredibly difficult for small- and medium-sized enterprises to secure appropriate levels of finance. SMEs have access to more diverse options through these new fin-tech innovations. These products can be appropriately tailored to meet the needs of small businesses. Examples include online trade finance, peer-to-peer lending and other e-commerce arrangements. Worldwide, there are many examples of success in this space. WeChat in China allows users to apply for loans and receive a decision almost instantly, through the app. It then allows individuals to transfer money to each other, again within the app. Lufax, the second largest peer-to-peer lender in China, offers personalisation of car insurance options in real time, taking into account weather and traffic conditions on the day.

Blockchain and digital currencies generate value streams not just limited to financial services. The fin-tech sector has a huge role to play in transitioning our economy. Micro-economic policy reforms and even competition policy reform can be accelerated by blockchain innovations in this space. The ASX, for example, recently announced its intention to introduce blockchain technology into the process of clearing and settlements. RMIT in Melbourne has just launched a Blockchain Innovation Hub this month.

In other matters in the bill, schedule 2 amends the Income Tax Assessment Act 1997 to include the Centre for Entrepreneurial Research and Innovation on the list of deductible gift recipients. This allows members of the public to make tax-deductible donations to the CERI. The CERI is located in Nedlands, WA, near the UWA, in the federal electorate of Curtin. It was established in 2015, initially funded by iron ore miner Charlie Bass. This ensures that gifts of $2 or more to the organisation will be tax deductible. The amendments apply to gifts to made to the CERI after 1 January 2017 and before 31 December 2021. Listing organisations in tax law is common and uncontroversial. Labor supports the Centre for Entrepreneurial Research and Innovation's addition to the DGR list. Labor has a proud record of strengthening and protecting the not-for-profit sector, and we are pleased to support this bill.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.