From the preface:
Australian entrepreneurs are suffering from a lack of access to venture capital, putting at risk our future economy and competitiveness. Funding for Australian start-ups, a crucial piece of the innovation pipeline, has fallen by two thirds in the past year.
ICOs are a mechanism of funding for the creation of technology platforms and development of blockchain businesses.
To date globally, more than USD$26B of capital has been raised through the Initial Coin Offering (ICO) market.
Australia currently has only 0.79 per cent of this market which is attributable in part to the current taxation treatment.
ICOs are bridging the financing gap in the blockchain sector and also reduce the need for taxpayer-funded grants.
However, Australia’s tax laws presently do not contemplate ICOs as a type of capital raising. Instead, proceeds are most commonly taxed as income, immediately reducing the amount of money raised by startups relying on this form of capital raise. This does not align with the treatment of proceeds under other capital raising mechanisms. If continued, Australian tax laws will limit the access to capital for burgeoning Australian technology firms, which will very possibly lead to these would-be firms moving elsewhere.
Tax regulation that is not fit for purpose will result in Australian blockchain companies failing to thrive or going offshore.
The development of a competitive blockchain ecosystem is crucial to enable Australia’s future as a FinTech leader and to deliver improved services to the Australian people.
We acknowledge that the Australian Government has addressed some of the taxation issues already, by taking measures such as removing the double taxation of digital currency transactions by treating certain digital currencies like money for GST purposes. There is a history of taxation reform by the government to reflect the needs of industry.
This report recommends that a company’s proceeds from the issuance of tokens in an ICO should be considered ‘not assessable’ for income tax purposes, which is equivalent to the treatment offered to companies in respect of proceeds of a capital raise. The treatment should apply from the date of Australia’s first ICOs in 2017.
This would ensure Australia is competitive in the global blockchain sector, and as the companies grow, would deliver significant tax revenue to the Australian Treasury as well as helping the Australian economy to reach its full potential.