The Australian Treasury has released a long-awaited consultation paper on Australia’s implementation of the Crypto-Asset Reporting Framework (CARF) and amendments to the Common Reporting Standard (CRS) (OECD Crypto Rules). The proposed legislation will be Australia’s contribution to the OECD framework to prevent crypto tax evasion. Fifty-eight jurisdictions, including Australia, have signalled their intention to implement the OECD Crypto Rules by 2027.
Our earlier article provided a detailed summary of the CARF rules.
It is expected that the new requirements would, subject to other legislative priorities, commence from 2026 to ensure that the first exchanges of information between the Australian Taxation Office (ATO) and foreign taxation authorities could start by 2027. Once implemented, reporting of CARF information by crypto asset service providers is expected to occur on an annual basis.
Crypto asset service providers should review the OECD Crypto Rules in detail and consider updating systems, processes and governance structures to prepare for implementation. Crypto asset service providers may also wish to consider lodging a submission with a view to having any practical concerns addressed in the implementing legislation.
The closing date for submissions is 24 January 2025.
Implementation options
The CARF has been developed as a global framework for the automatic exchange of tax information between relevant countries on transactions involving crypto assets. The new rules are very broad and will capture entities that are not currently subject to CRS. The amendments to the CRS seek to bring alternative financial products within scope and enhance reporting outcomes under the existing regime, while avoiding duplicative reporting with the CARF.
There are two options that Treasury is currently looking at:
- Option 1: Adopt the OECD Crypto Rules: This would incorporate the same defined terms, concepts, due diligence procedures, de minimis thresholds, exclusions and impose the same obligations on crypto asset service providers as the OECD Crypto Rules. This includes incorporating OECD guidance material. Australia would still reserve the right to make some adjustments so that the OECD model could be adapted to Australian conditions.
- Option 2: Bespoke approach: A bespoke regime could include the same reportable information as captured under the OECD Crypto Rules but offer flexibility to exclude or add information or types of transactions captured.
Option 2 seems unlikely to be chosen by Treasury because participating countries are heavily encouraged by the OECD and peers to adopt the OECD-developed model rather than bespoke rules.
In the past, Australia has enacted unilateral legislation which was inconsistent with the relevant OECD framework, for example in relation to diverted profits tax. Australia received some criticism due to the lack of alignment with other countries. Since then, Australia has been conscious to align its legislation with the OECD approach, for example in relation to Pillar Two where the draft legislation follows the OECD model very closely and implements (sometimes as yet unwritten) OECD guidance. Our article on the Pillar Two draft legislation is available here.
Further, as noted by Treasury, under Option 2 many of the benefits of consistent reporting on a global level would be lost. This may result in increased compliance costs and the ATO may receive less information from other taxation authorities as bespoke rules might not be considered fully compliant with the OECD standard.
Treasury makes reference to the European Commission’s Directive on Administrative Cooperation (DAC8). DAC8 was adopted by the European Commission to integrate the OECD Crypto Rules into the EU’s legal framework. DAC8 closely follows the OECD model but does not incorporate the associated guidance material. While Treasury describes DAC8 as an example of a ‘bespoke’ regime, DAC8 appears to be more of a hybrid between a bespoke and OECD purist approach. It is likely that Australia will implement the associated guidance material which is consistent with how the Foreign Account Tax Compliance Act (FATCA) and were implemented and how the Pillar Two reforms are proposed to be implemented.
As for other OECD initiatives, there is likely to be a disconnect between the OECD-developed model and the reality on the ground in Australia. This will have to be addressed through modest tweaks to the OECD model in the Australian implementing legislation. We expect, based on past experience, that if such tweaks are not included, there could be significant additional compliance costs and unexpected outcomes for some taxpayers.
Australia still needs to enter into a Multilateral Competent Authority Agreement or a bilateral information exchange agreement to enable the exchange of information with foreign tax authorities under the OECD Crypto Rules.
Other consultation questions
Treasury has asked a number of other questions as part of the consultation process, focusing on:
- the extent to which Australian domestic law can be leveraged to ensure smooth implementation of the OECD Crypto Rules;
- where additional guidance or clarification would be helpful;
- how crypto asset service providers could be assisted to manage the intended implementation timeframes; and
- the likely compliance costs that will be incurred and how these can be minimised.
Next steps
Entities which provide services in relation to crypto assets and reporting financial institutions under FATCA/CRS should:
- analyse their status and the status of any crypto assets under the current FATCA/CRS regime and the OECD Crypto Rules;
- consider how best to start tailoring their compliance processes in line with the expected Australian rules; and
- build best practice governance controls to assist with complying with the regime.
KWM is at the forefront of advising Australian major businesses on crypto regulation generally and FATCA/CRS compliance. Please contact a member of the KWM Tax Team or your usual KWM contact if you would like more details about the tax or reporting obligations of crypto asset services providers or how the CRS amendments will affect you.
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