As global regulators sharpen their focus on crypto-assets, jurisdictions are testing a range of tax approaches - from Denmark's proposal to tax unrealised crypto-asset gains, to less aggressive up-front frameworks that instead propose higher taxes upon realised crypto-asset disposals. These efforts underscore mounting concerns around economic equity, price volatility and regulatory oversight, as crypto’s influence on traditional financial systems continues to grow. Australia’s approach adds another layer, offering a contrasting perspective within the global regulatory landscape.
Italy to increase tax on realised crypto gains
Italy’s proposed budget for 2025 aims to generate around €68 million by enforcing a heightened tax on crypto capital gains, jumping from 26% (which was roughly in line with an Australian taxpayer paying the highest marginal rate on a crypto-asset disposal where they were entitled to the general 50% CGT conccession) to a much higher 42%. Italy's CGT rate for most other CGT assets remains at 26%.
Denmark’s proposal to tax unrealised gains
Denmark’s plans to introduce a novel model by applying an 'inventory-based' taxation system on unrealised gains at 42% (this seems to be the magic number for EU countries - perhaps EU legislators are fans of Douglas Adams' 'The Hitchhiker's Guide to the Galaxy'), targeting the annual change in value of crypto holdings. Under this system, investors would pay tax on 'paper gains', or gains in value for assets they continue to hold. Denmark argues this approach brings crypto in line with specific financial contracts subject to similar treatment under the 'lagerprincippet' which taxes inventory value changes yearly.
While Denmark’s method may be appropriate for low-frequency traders with fewer assets to assess annually, it raises some liquidity concerns. In a volatile crypto market, taxing unrealised gains risks putting undue strain on investors/traders, who might lack the cash/liquid assets to pay taxes on value increases they haven’t realised (i.e., monetised). The Danish proposal includes liquidity relief options, such as carrybacks and allowances for post-year market drops, but it could still discourage long-term investment by creating unpredictable tax liabilities. Several big industry players have criticised the tax hikes, with Tether CEO Paolo Adroino commenting on X:
How does Australia line up?
In contrast, Australia treats cryptocurrency as an asset that falls under the general definition of property (as opposed to a specific asset that requires specific treatment). Taxes are generally applied when assets are sold, ensuring that investors pay capital gains tax (CGT) on realised gains. This allows investors to manage their tax obligations based on actual profit-taking, thereby reducing the risk of having to sell assets to cover taxes on unrealised gains. However, there are exceptions to this, such as the wrapping and unwrapping of crypto-assets, whereby a taxpayer may incur a large tax bill without converting any of the crypto-assets into fiat currency with which they can pay tax with (an outcome that practitioners often disagree with).
Conclusion
While EU nations’ moves towards aggressive methods and rates of taxation might increase tax revenue, it creates unique challenges in the crypto market. Crypto-assets are historically volatile, and taxing unrealised gains could discourage investment and trap investors who lack the cash to cover tax obligations during market downturns. This may cause investors to sell their holdings or relocate to jurisdictions with more favorable tax policies, impacting market dynamics and affecting the EU's competitiveness in the blockchain ecosystem.
As nations around the world develop diverse crypto tax frameworks, Australia has the opportunity to observe and adapt. Australia’s own review of crypto-asset taxation remains in the hands of government following the Board of Taxation’s much anticipated and long delayed review. While an open-minded approach to international trends will allow Australian policymakers to refine the country’s tax treatment as needed, ultimately a balanced crypto tax policy that considers investor liquidity, market volatility, and fiscal goals will be key to fostering a sustainable environment for digital assets in Australia.
Written by Steven Pettigrove and Luke Higgins
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