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Is it legal to convert dollars to bitcoins?

is bitcoin legal in australia

Converting your money to bitcoins can mean two things: you’re investing in them and holding them until you feel satisfied with their value’s growth to sell them, or you’re facilitating a trade. 

Whichever it is, you must know the legalities of such transactions. Countries have different approaches to bitcoins, and in this article, we’re discussing the specific laws and regulations that regulate cryptocurrency transactions so that you can exchange your dollars for bitcoins safely and legally. 

In the US 

In many states, it’s legal to buy bitcoin. Where bitcoin is legal, most laws that apply to other assets apply to the cryptocurrency. For tax purposes, bitcoins are treated like properties instead of a currency, and it’s not considered a legal tender. 

Bitcoin and Regulatory Bodies 

The Internal Revenue Service (IRS) issued various guidance in 2014, providing information about virtual currency taxation. Then, in 2020, it issued a new tax form that requires taxpayers to report their virtual currency engagements in 2019. Under the current regulations, the following kinds of transactions are all taxable:

  • Selling personally mined bitcoin to a third party 
  • Selling bitcoins you bought from someone to a third party 
  • Using bitcoins, mined or bought, to purchase goods or services

Transactions with personally mined bitcoins are taxed as personal or business income. Meanwhile, bitcoins that you buy from another party are taxed as asset investments. If you hold bitcoins for less than a year, you’ll pay short-term capital gains tax, while long-term capital gains taxes are applicable if you hold bitcoins for more than a year. 

The Commodities Futures Trading Commission regulates bitcoins as commodities, while the Securities and Exchange Commission requires any virtual currency trading in the country to be registered.

Trading Bitcoin

Many US states don’t have laws that prohibit you from buying bitcoins. In California, bitcoin’s status hasn’t been defined yet, so it’s not regulated. In Texas, no money transmitter license is needed to sell digital currencies. 

States like New York, New Hampshire, New Mexico, Connecticut, and Florida require money transmitting licenses for crypto operators. In 2020, however, 48 states agreed to use a single set of licensing rules, so a company that already operates as money transmitters in one state automatically is eligible for a license in another state. 

In Canada 

Like the US, Canada is friendly towards bitcoins and cryptocurrencies in general, meaning they’re legal in the country. You can buy and sell bitcoins using the proper platform. Meanwhile, authorities work hard to ensure that such digital currencies aren’t used for money-laundering activities.

Barter Transactions in Bitcoin 

The Canada Revenue Agency (CRA) views bitcoins as a commodity. Because of that, bitcoin transactions are viewed as barter transactions, and any income you get from it is considered business income. Your taxes will depend on whether you have a buy-and-sell business or you’re only investing in virtual currency.

And since bitcoins are commodities under Canadian law, the Financial Consumer Agency requires you to report any gains or losses from selling or buying digital currencies. Any gains or losses are considered taxable income. 

Reporting and Compliance 

If you’re running a bitcoin exchange business, as opposed to only investing in it, you need to register with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC). You must report any suspicious transactions, abide by compliance plans, and keep some records. If you’re dealing with third-party banks, know that some major Canadian banks have banned the use of their cards for bitcoin transactions. 

Finally, if you’re engaging in any cryptocurrency transactions in Canada, you must keep the following records: 

  • Date of transactions
  • Receipts of purchase or transfer
  • Value of the cryptocurrency in CAD
  • Digital wallet records and crypto addresses
  • Description of the transaction and the other party
  • Exchange records
  • Accounting and legal costs
  • Software costs
  • Receipts for purchase of mining hardware (for miners)
  • Other receipts and records associated with mining operations (power costs, pool fees, maintenance costs, etc)
  • Mining pool details and records

In the UK 

The UK has a pro-bitcoin stance and advocates for a cryptocurrency-supportive regulation environment. In 2020, the UK government confirmed that crypto assets are treated as properties. However, they’re not considered legal tender.

Current Cryptocurrency Regulations in the UK

Cryptocurrency exchanges are required to register in the UK. As of January 2021, all UK crypto firms that have a presence or product in the UK market must register with the Financial Conduct Authority (FCA)

This also applies to all recognized crypto exchanges, advisers, professionals, and investment managers, as well as any crypto entity that provides services to UK clients. 

The FCA emphasizes that if you’re engaging in crypto transactions, you must comply with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLRs). 

Future Regulations 

The UK’s digital currency regulations are expected to remain consistent with the EU’s, even after Brexit. However, it’s also likely that its laws will diverge a bit from the bloc. 

At present, there’s no specific crypto legislation. However, the UK is planning to bring certain cryptocurrencies under the scope of “financial promotions regulations,” considering a broader approach to bitcoins and other crypto assets. 

In Australia 

Australia has been keeping an eye on cryptocurrencies, which has been the center of attention in the country for many years. Similar to the US, Canada, and the UK, the Australian Taxation Office (ATO) rules bitcoin and other cryptocurrencies as assets subject to capital gains tax, so it’s perfectly legal to buy and hold cryptocurrencies. However, they’re accepted neither as legal tender nor foreign currency. 

Bitcoin Laws and Regulations 

In 2017, the Australian government declared cryptocurrencies as legal and subject to the Anti-Money Laundering and Counter-Terrorism Financing Act of 2006 (AML/CTF 2006). 

Then, in 2018, the Australian Transaction Reports and Analysis Centre (AUSTRAC) implemented more comprehensive cryptocurrency exchange laws. Under the regulation, crypto exchanges operating in Australia must register with AUSTRAC to comply with AML/CTF 2006.

Exchanges need to identify and verify their crypto users, maintain records of transactions, and comply with their reporting obligations under AML/CTF 2006. 

In May 2019, the Australian Securities and Investments Commission (ASIC) updated its requirements for initial coin offerings and crypto trading. In August 2020, regulators compelled exchanges to delist privacy coins, a special type of anonymous cryptocurrency.

For more posts about Cryptocurrency and the law surrounding it, check out our Internet Law category page!

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