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The future of money and tax incentives

The future of money and tax incentives

As investment market participants, we have a new, decentralised financial model available to us. At the same time, the majority of our economy still relies on antiquated payment processing and remittance. When will code really meet money at a global scale? What will it take to get there?

  • Contributed by Maryna Kovalenko
  • July 19, 2019
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Many finance industry commentators argue that the best money for our digital future is hard money that is not linked to a particular country, is scalable for financial transactions, and global for mass adoption. The money of the future may allow consumers to become their own bank.

The money of the future may well be crypto.

Path to adoption

Adopting new technology can be challenging, especially when there are multiple moving pieces. The path to adoption of digital currency is no different. It relies on society’s ability to not only understand the purpose of crypto and what it’s used for, but also make sense of how the crypto markets like bitcoin work and grasps the concept of a private key. This is no small task.

Adoption is expected to happen when the user experience overcomes all the underlying complexity, similar to how the complexity surrounding the internet was eventually removed.

Hurdles to mass adoption

Before crypto can be adopted by the general population, three key hurdles need to be addressed:

  • Security – it is still far too easy for everyday users to lose funds due to malicious actors
  • Ease of use – despite being more secure than traditional banks, the blockchain can seem daunting to new users
  • Coexistence with traditional finance – convincing people to step outside of their financial comfort zone to use crypto is tricky as traditional banks have been the norm for a long time and independent assurance in the crypto market has been limited.

Rather than trying to compete with banks, the crypto industry needs to educate people on the benefits that crypto can offer over traditional financial institutions, while creating the tools needed to easily on-board them.

To solve this, cryptocurrency markets need to be more accessible to, and more secure for, the everyday user by simplifying details like lengthy addresses and making wallets easier to navigate, among other things.

"It’s time for wallets and exchanges to change the paradigm and enable dramatic improvements in usability across all blockchains"— David Gold, CEO of Dapix, Inc. 

We will get there

Technology gradually creeps up on you. History suggests that we overestimate what we can do in one year, and underestimate what we can achieve in 10 years.

If you compare crypto to the history of the internet, distributed ledger technology is in the early stages of technological progress. There is a long way to go, but the chances are that we will get there sooner than we think.

Want to use your crypto or fiat to invest now? Check for tax incentives

There are many people who have taken the view that crypto is here to stay and opted to join the investment journey early.

If you are attracted to this growing investment mechanism, be sure to investigate any investments where you can use your crypto or fiat to obtain tax incentives.

There are numerous new and exciting start-ups that meet the Australian Taxation Office’s (ATO) criteria for an early-stage innovation company (ESIC). Many of these ESICs seek seed funding by way of crypto or fiat. Investing in these ESICs – via either crypto or fiat – means you could be eligible for tax incentives as an angel investor. The early stage investor tax incentives are available to both Australian resident and non-resident investors.

The tax incentives provide eligible investors who purchase new shares in an ESIC with a:

  • Tax offset equal to 20 per cent of the amount paid for their qualifying investments. The tax offset will directly reduce the amount of tax you have to pay, with each dollar of tax offset reducing your tax payable by the same amount. If you don't use all of your early stage investor tax offset in one year, you can carry forward the remaining amount for use in future income years. The maximum offset that you can claim in the current income year cannot exceed $200,000.
  • Capital gains tax (CGT) treatment, under which capital gains on qualifying shares that are continuously held for at least 12 months and less than 10 years may be disregarded.

If the investor is a trust or partnership, special rules apply so that the entitlement to the tax offset flows through to the member of the trust or partnership. If the investor is a superannuation fund, the trustee of the fund and not the fund members, would be entitled to the tax incentives.

You should also note that there are important other tax considerations when investing using crypto, for example, there may be CGT events that result from the conversion of crypto into other investments, which could result in a taxable capital gain on making the investment if the value of your crypto has increased since it was acquired.

BDO moves into auditing blockchain and crypto assets

In June, Austrtalia’s BDO announced it would provide auditing and assurance services for blockchain and crypto assets in a move that’s likely to attract new institutional investors to the sector.

BDO will provide its services via a partnership with Singapore and Sydney-based Decentralised Capital, a specialist blockchain firm focused on developing institutional grade digital assets and services.

On occasion of the announcement, BDO national leader for financial services Tim Aman said, “One of the biggest barriers holding institutional investors back is the lack of transparency about the quality of digital assets. By providing comprehensive audit and assurance services, our entry into this growing sector will be a game changer for new investment into this asset class.”

Maryna Kovalenko, senior consultant, corporate tax, BDO Australia

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