On 20 October the Law Institute of Victoria (LIV) made a submission to Board of Taxation as part of its consultation on the appropriate tax treatment of digital assets in Australia. This Submission is attached and the text which follows is extracts from the submission.

Digital Concepts and Terms

The LIV notes that those in the digital asset industry (referred to generically as the ‘Crypto Industry’ in this submission) traditionally make use of certain concepts and terms. The LIV submits that that in many instances such Crypto Industry terms and phrases are broad and may result in some confusion rather than assistance. The LIV considers that in drafting any provisions for the taxation of digital assets, it should be taken into account that such terms are often fluid. For example, terms such as ‘NFT’, ‘staking’, and many others might connote a broad spectrum of assets and/ or transactions.

Also, when considering the term ‘staking’, there are a number of different common law legal outcomes which may arise. For example, some staking transactions might:

be akin to (or in fact) bailment; or
resemble leasing transactions; or
be akin to margin lending; or
result in a buy-sell with a subsequent repurchase.

In addition, when considering another term broadly used in the Crypto Industry, ‘smart contracts’, use of the term ‘contract’ implies a legal contract, however this may not be the case in all circumstances. Further, the LIV notes that smart contracts often reference coding rather than a written document; the coding dictates certain events taking place or constrains certain events from taking place with it being unclear whether the ‘contract’ actually binds the parties.