August was a busy month for the digital assets industry. The Federal Government, Australian Securities and Investments Commission (ASIC), the Reserve Bank of Australia (RBA) and the Board of Taxation all announcing various initiatives relating to digital assets.

We explore the new initiatives and what they mean for the regulatory landscape.

Token mapping to identify how to regulate crypto assets and related services

The newly-elected Albanese Government has released a statement that it will prioritise 'token mapping' work in 2022 in order to identify how crypto assets and related services should be regulated.

Token mapping involves identifying and compiling all digital asset tokens available in Australia, then classifying them by features such as type of crypto asset, underlying code, and any other defining technological features.

A joint media release on 22 August 2022 from Treasurer the Hon Jim Chalmers MP and Assistant Minister for Competition, Charities and Treasury, the Hon Dr Andrew Leigh MP, indicated that a public consultation paper on 'token mapping' will be released soon.

While there is no doubt of the usefulness of the token mapping exercise to educate regulators of the intricacies of the crypto asset landscape, it will be interesting to see how crypto regulation is shaped and informed following the conduct of this exercise – and how quickly this exercise can be completed. It will also be useful to see whether and how the Albanese government will take into account the consultation undertaken by the previous Morrison government earlier this year on the proposed introduction of a licensing and custody regime for crypto asset secondary service providers. View our submission to that consultation.

According to the joint media release, the aim of the consultation will be 'to identify notable gaps in the regulatory framework, progress work on a licensing framework, review innovative organisational structures, look at custody obligations for third party custodians of crypto assets and provide additional consumer safeguards'. It said that any regulation of crypto will strive to balance 'embracing new and innovative technologies' with 'safeguarding consumers'.

ASIC Corporate Plan 2022-26 looks at crypto-assets

On the same day as the token mapping announcement (22 August 2022), ASIC released its Corporate Plan for the next four years. Following the release of ASIC’s Report 735 Retail investor research, which discusses retail interest in crypto-assets and ASIC’s ‘[concern] about the number of people surveyed who reported investing in unregulated, volatile crypto-asset products’, crypto-assets have been included as one of ASIC's core strategic priorities.

Specifically, ASIC intends to 'take action to protect investors from harms posed by crypto-assets that fall within our remit'. This includes:

• taking enforcement action against crypto-assets that mimic traditional products but seek to circumvent regulation;
• supervising and assessing Product Disclosure Statements and target market determinations of significant regulated crypto offerings; and
• raising public awareness of the risks inherent in crypto-assets and decentralised finance.

Importantly, ASIC has also stated that it will work with its international peers to develop coordinated international policy regarding crypto-assets and decentralised finance in addition to supporting the development of an effective domestic regulatory framework.

Tax treatment of digital assets

On 18 August 2022, the Board of Taxation released a Consultation Guide in connection with its review of the tax treatment in Australia of digital assets and transactions.

The Consultation Guide identifies various uncertainties as to how the traditional and accepted principles of tax law apply to crypto assets, notably:

• Where to tax – issues with identifying the taxpayer's residence, the source of any income arising from crypto assets and taxing rights in a country where entities transact using crypto assets;
• What to tax – how to characterise relevant assets and transactions and how to attribute profit and recognise losses in relation to crypto assets; and
• When to tax – whether creating, transacting with and/or processing crypto assets triggers a taxing point.

The Consultation Guide provides a high-level summary of the guidance issued to date by the ATO on how a range of different taxes apply to crypto assets. The Guide also describes, albeit briefly, recent Federal Government activity which has culminated in the Board's review and some recent OECD developments in the digital asset space.

The Guide then asks 15 questions, grouped into the following broad themes:

• The current Australian tax treatment of crypto assets and transactions, and emerging tax policy issues.
• The awareness of the tax treatment of crypto assets by both retail and wholesale investors and those transacting in crypto assets as part of their business.
• The characteristics and features of crypto assets and transactions in the market.
• How comparable jurisdictions approach taxing crypto assets and how these international experiences may inform Australia's approach.
• Whether changes should be made to Australia’s tax laws in relation to crypto assets.
• Whether changes should be made to the administration of Australia's tax laws in relation to crypto assets.

The Board is conducting a number of external consultation sessions between 5 and 23 September. Interested parties can participate in these sessions and/or make an online submission. Submissions are due by 30 September 2022.

The consultation process will lead to the development of an appropriate policy framework and making recommendations, if necessary, to amend or update tax laws to implement this framework.

The Board is due to deliver its final report to the Federal Government by 31 December 2022.

Please get in touch with the MinterEllison tax team if you have any questions in relation to the Consultation Guide or would like assistance with preparing a submission.

Reserve Bank to trial CBDCs

On 9 August 2022, the RBA announced it would be collaborating with the Digital Finance Cooperative Research Centre (DFCRC) on a research project to explore use cases for a central digital bank currency (CBDC) in Australia. The Australian Treasury is also participating as a member of the steering committee for the project. CDBCs are sovereign currency issued and controlled by a central bank, and their issuance is not contingent upon the use of any specific technology.

Rather than focussing on the feasibility and possible technical design of CBDC, the year-long project will explore the use cases for a CBDC and the potential economic benefits of introducing one. It will involve ‘the development of a limited-scale CBDC pilot that will operate in a ring-fenced environment for a period of time and is intended to involve a pilot CBDC that is a real claim on the Reserve Bank’. The pilot CBDC to only be used within the closed-loop system of the particular business cases proposed by industry participants, as selected by the Reserve Bank and the DFCRC.

In the next few months, a paper will be published that will explain the objectives and approach of the project in more detail and how industry participants will be able to engage.

Please contact us if you have questions or wish to discuss further in relation to any of the above.