On 19 October, the Australian parliament passed legislation that will transform how digital currencies are treated for taxation purposes in Australia.

The legislation, which means digital currencies used to buy goods and services in Australia will be treated just like money for tax purposes, will be backdated to 1 July 2017.

Currently, consumers who use digital currency in Australia can effectively bear a goods and services tax (GST) burden twice: once on the purchase of the digital currency and once again on its use in exchange for other goods and services subject to the tax.

It signifies a growing willingness by the government to recognise the opportunities afforded by cryptocurrency and to remove outdated tax settings that hold back Australian start-ups and innovators, which FinTech Australia asserts will help ensure Australia’s tax system is fit for purpose in the modern economy.

The decision should be recognised as an important step for cementing Australia’s position as a fintech-friendly landscape for local innovators, the peak body for Australia’s fintech industry said today.

Australia is understood to be one of only a handful of countries which has made such an announcement. In March this year, Standards Australia released a roadmap for the development of global blockchain standards, and in June, Australia’s data innovation group Data61 conducted two comprehensive reviews of how blockchain based systems could be adopted across government and industry.

With the support of the Australian Government, Standards Australia is currently developing the world’s blockchain standards, and it is hoped the legislative changes will form the basis for robust future governance and regulation for blockchain in Australia, but also amount to realising exciting new use cases for the technology.

Blockchain Global chief executive Sam Lee said that the double goods and services tax (GST) treatment of digital currencies has prevented Australia from growing its cryptocurrency payments rail, which he says will be a key pillar of the future global economy.

“The removal of double GST on digital currencies will position Australia as a great jurisdiction to be part of the rapidly growing global blockchain ecosystem,” Lee said.

“There's a wealth of opportunities that this removal of the double taxation can bring to Australia. For instance, Australian investors are no longer paying a 10 per cent premium when buying cryptocurrencies.”

He said the federal government’s passage of the bill means that Australians will no longer be penalised for acquiring digital currencies.

“Australians are now able to participate in acquiring their share of over US$110 billion in the global market value of cryptocurrencies - that wealth in cryptocurrency did not exist eight years ago,” Lee said.

“Australia has one of the highest per capita population with crypto currencies and with the removal of double GST, we are on track to capitalise on the momentum to create the next Silicon Valley in Australia by building out an epicenter of Blockchain IP and knowhow down under.”

Commodity management solution AgriDigital CEO Emma Weston, who is also a board member of Fintech Australia, also welcomed the changes.

She said any initiative that encourages innovation with digital currencies was a huge step forward for Australian agriculture and agtech.

“In supporting the movement towards the development of digital currencies, we see the removal of the GST as overcoming a significant regulatory uncertainty in the cryptocurrency space,” Weston said.

“Australia is the perfect test market for blockchain technologies, and this move helps provide the confidence needed to make the most of the range of opportunities offered by cryptocurrencies.”

Alan Tsen, Melbourne general manager of fintech hub Stone and Chalk Melbourne and board member of Fintech Australia, said the changes will be a huge opportunity for the broader adoption of digital currencies by merchants and consumers.

“This is because there will be less friction for people to accept and pay with it," Tsen said.

"I have used digital currencies to purchase items myself and have always been pleasantly surprised by how smooth and safe the experience is. It's as easy as scanning a QR code with your phone and a better alternative to the clunky process of entering your digits from your credit card to pay."

The growing viability of digital currencies as a safer mode of payment will also make them more appealing under the new regulatory environment, he added.

"A lot of people have been purchasing digital currencies as stored value but we're seeing digital currencies becoming a more viable e-commerce payment option,” Tsen said.

“It's a much safer mode of payment especially in a time with increasing cyber security threats."