ETF Investment Special Topic: Australian BTC ETF News How Investors Pay Taxes

Source: TaxDAO

The U.S. Securities and Exchange Commission approved the listing of the first 11 spot Bitcoin ETFs on January 10, and the Hong Kong Securities Regulatory Commission is also speeding up its review of the first Hong Kong Bitcoin spot ETF. Interest in Bitcoin ETFs in Australia surged after the United States approved a Bitcoin spot ETF, and the Australian Securities Exchange (ASX) is expected to approve its first Bitcoin ETF soon. This article will start with the current status of Bitcoin ETF trading in Australia, analyze the Australian Bitcoin ETF tax policy, analyze the latest developments of Australian spot Bitcoin ETF, and predict its future development trend.

1. Australian Bitcoin ETF tax policy

The taxation of Bitcoin ETF at the lower level is roughly the same as that of other ETFs, involving capital gains tax, income tax, Withholding tax, the specific tax is related to factors such as the place and type of registration, the investor's residence, and the jurisdiction where the investment target is located. In the sale and redemption of ETFs, the sale is a capital gains tax event, while the redemption is not a taxable event and does not require tax.

In Australia, when individual investors invest in Bitcoin ETFs and obtain capital gains through sales or dividends, they should comply with the same tax rules as general assets such as stocks and need to pay capital gains tax. Capital gains tax is not an independent tax, but a type of personal income tax. The tax rate is different for different people. Australian resident individuals pay a progressive tax rate of 19%-45%, and residents whose annual total income is less than $18,200 are exempt from personal income tax. At the same time, Australian investors may receive a 50% long-term capital gains deduction if they hold cryptocurrencies for more than a year before selling or trading a Bitcoin ETF.

Generally, Australian resident companies that obtain capital gains from the sale of Australian taxable properties are taxed at a tax rate of 30%, and small businesses with a cumulative annual operating income of no more than AUD 50 million are taxed at a rate of 25%. Therefore, the capital income obtained by companies investing in Bitcoin ETFs and selling profits will also need to pay capital gains tax at a rate of 30% or 25%. At the same time, unlike individuals, Australia provides a series of tax exemption policies for companies. For example, there are exemption policies for personnel costs, office costs, annual profits and other aspects, which are subject to the actual situation of the enterprise. At the same time, both individuals and businesses need to declare and pay taxes on their annual tax returns. If capital gains tax exceeds A$50,000, it needs to be paid in advance.

In Australia, dividends distributed by ETFs to non-resident companies or individual investors are subject to a withholding tax of 30% of the total amount. But Bitcoin ETFs don't pay dividends, so they generally don't need to deal with such issues.

2. Tax treatment for Hong Kong and Singapore residents investing in Australian Bitcoin ETFs

2.1 Tax treatment for Hong Kong residents investing in Australian futures Bitcoin ETFs

Hong Kong levies income tax (profits tax) on the spread income earned by investors from selling Bitcoin ETFs. The profits tax rate for a corporation is 8.25% on the first HK$2 million, and 16.5% on subsequent assessable profits. For non-incorporated persons operating sole proprietorships or partnerships, the two-tier profits tax rates are 7.5% and 15% respectively. Investors generally do not need to pay tax on dividends received in Hong Kong. Dividends received by shareholders from corporations subject to Hong Kong profits tax are exempt from tax; dividends or gains received from overseas are income from overseas sources and are not subject to tax.

Since there is no double taxation agreement (DTA) between Hong Kong and Australia, and when Australian resident companies pay interest, dividends, etc. to non-residents, they must levy withholding tax, so Hong Kong investors are investing Conventional ETFs in Australia will pay withholding tax at a rate of 30%; Bitcoin ETFs usually do not involve withholding tax.

Different from investing in US ETFs, if capital gains are generated from the sale of Australian Bitcoin ETFs, you usually need to declare and pay capital gains tax in Australia. Australia’s capital gains tax rate for foreign investors is generally 10% .

2.2 Tax treatment of Singapore residents investing in Australian futures Bitcoin ETF

Singapore does not tax capital gains obtained by companies and individuals. However, for anti-tax avoidance considerations, if the holding period is short, capital gains from the sale of equity will be taxed as business income. There is no tax on gains from the sale of equity shares that hold more than 20% of the shares and the holding period exceeds 24 months.

Singaporean investors will pay withholding tax when investing in ETF funds in other countries or regions. Since Singapore and Australia have signed a DTA agreement, which limits Australia’s withholding tax rate to a maximum of 15%, investors from Singapore need to pay a withholding tax of 15% when receiving dividends from Australian general ETFs (Bitcoin ETFs do not generate dividends. So there is no such problem).

In addition, similarly, if the sale of Australian Bitcoin ETF generates capital gains, it is usually necessary to declare and pay capital gains tax in Australia. Australia’s capital gains tax rate for foreign investors is generally 10%.

At the investor level, Singapore implements the territorial principle and only taxes income generated in or derived from Singapore. However, the Singapore Income Tax Act provides that income generated outside Singapore is also deemed to be “Singapore source” if it is remitted, transmitted or brought into Singapore.

Individual investors who remit their income from investing in Bitcoin ETFs into Singapore will generally have to pay personal income tax on this income. Singapore's personal income tax in 2024 ranges from 0% to 24%, depending on the individual's taxable income.

Singapore resident companies have tax exemptions for dividend income from overseas sources, if: (1) When the income from overseas is received in Singapore, the highest corporate tax rate of the overseas country that generated the income is (Title tax rate) is at least 15%; (2) the income has already been taxed overseas; (3) the authorities believe that tax exemption will be beneficial to the resident company.

With the adjustment of Singapore’s tax laws, starting from January 1, 2024, income from the sale of foreign assets may be subject to tax when remitted to Singapore under certain conditions, which reflects Singapore’s gradual alignment with international tax standards. trend. However, for income from investing in Bitcoin ETFs, investors will generally only be subject to Australian withholding tax obligations if the income is not remitted to Singapore.

3. Australian Spot ETF News: Will ASX approve a spot Bitcoin ETF?

There are currently several spot Bitcoin ETFs in Australia. Among them, Cosmos Asset Management will issue Australia’s first Bitcoin ETF in 2022. The Cosmos Bitcoin ETF provides exposure to Bitcoin through Canada’s Purpose Bitcoin ETF. Indirect exposure to spot investments. At the same time, Canada-based 3iQ Digital Asset Management launched a spot ETF, the 3iQ CoinShares Bitcoin (BTC) Feeder ETF. This Australian ETF draws funds from the Canadian ETF listed on the Toronto Stock Exchange, and the underlying asset is the Gemini cryptocurrency exchange. Bitcoins held in cold storage facilities. The funds were hosted on Chi-X, Australia’s second-largest market, rather than the ASX, as there were still some regulatory difficulties in listing blockchain and cryptocurrency-related stocks on the ASX at the time.

The U.S. Securities and Exchange Commission’s approval of spot Bitcoin ETFs has triggered a wave of cryptocurrency development in Australia and Asia. The market demand for cryptocurrencies and related assets has surged, and it has also helped to promote the development of Bitcoin spot ETFs. approve. Following the "customs clearance" of the first batch of Bitcoin spot ETFs in the United States, financial institutions in Hong Kong, China, are also accelerating the layout of virtual asset spot ETFs. Harvest Fund Hong Kong has submitted a Bitcoin ETF application to the Hong Kong Securities Regulatory Commission, becoming the first in Hong Kong Institutions submitting applications for Bitcoin spot ETFs, while the Securities and Futures Commission of Hong Kong hopes to speed up the approval of the first Hong Kong Bitcoin spot ETF in line with its ambition to become a cryptocurrency center. Hong Kong legislator Johnny Ng has been an active advocate of these developments.

The Australian Securities Exchange (ASX) is also increasing its presence in Bitcoin ETFs and is expected to approve its first spot Bitcoin ETF before the Hong Kong authorities. Previously, Monochrome Asset Management had submitted a spot Bitcoin ETF application to ASX in July 2023. The Bitcoin spot ETF provides risk exposure to spot crypto assets, provides retail investors with the opportunity to directly invest in Bitcoin, and bridges traditional financial markets. The gap between it and the world of digital assets is eagerly anticipated by investors.