Aussie blockchain company Power Ledger is consulting with the ATO to shape how ICO proceeds are taxed
Wednesday, March 21, 2018/
Australian crypto sector darling Power Ledger has revealed it’s in consultation with the Australian Taxation Office (ATO) to develop a proposition on how initial coin offerings (ICOs) should be treated in Australia.
Power Ledger, which completed a $34 million ICO in October last year, has long been an advocate for heightened transparency and caution around operating a company in the notoriously unregulated cryptocurrency space.
The startup’s efforts to deliberate with the ATO are a continuation of this, and co-founder Dave Martin hopes will get a clearer and better-defined outcome come tax time for not only Power Ledger, but both past and future Australian ICOs.
“We’re trying to be as transparent as we can, so we’re having these conversations with regulators around a sensible approach to regulation,” Martin told StartupSmart.
“The conversation has been initiated by our accountants, who are helping us to put together a proposition on how the proceeds of the ICO and the broader impact of crypto should be taxed, given the current tax rulings are not particularly clear.”
The ATO currently treats digital currency such as Bitcoin or Ethereum — which is the primary currency used in most ICOs — as neither a local or foreign currency. Instead, they are treated as property and as an asset for capital gains tax purposes.
Power Ledger’s $17 million public sale (with the other $17 million being issued in a pre-sale) was comprised of 27,820 ether, 1,050 Bitcoin and 6,120 Litecoin. Martin says the company is still holding around half of its ICO proceeds still as cryptocurrency, with the remaining withdrawn to help manage cash flow.
With that in mind, the company has at least an estimated $16 million still in cryptocurrency, but the real amount could be double that as it’s not known the crypto contributions of the pre-sale. Martin says the amount is “healthy”, despite the crypto market downturn over the past few months.
“Our consultation is around clarity on how the proceeds of an ICO are treated. If the proceeds of an IPO [initial public offering] are not taxed because they’re treated as equity contributions, should the same thing apply for an ICO?” Martin says.
“There’s a decision to be made here one way or the other. And it doesn’t just impact on our tax treatment … it could have a broader impact on if ICOs are conducted in Australia in the future.
“It’s a very focused conversation with a potential longer-term impact. We’re working things out and trying to get as good an outcome for Power Ledger as we can, and as the rulings around ICOs aren’t clear, what we do here potentially forms the basis for future rulings.”
The world of tokens, ICOs, and self-regulation
Power Ledger’s most recent announcement of plans to launch its energy trading product into the US set the startup’s community into a frenzy, and sent the token price up almost 100%, but the pace of new announcements from the company has now slowed down.
Martin says the startup has a number other developments in the wings, but notes the difference in how the company operates now to how it operated in the early days, with greater maturity bringing increased due diligence on announcements and the like.
“Early on we had a bunch of trials and MOUs which were exciting, but there wasn’t much binding about them. Now we’re getting to real commercial negotiations, which by their nature take longer to nut out, and large organisations often have their own requirements around timing,” he says.
“The other thing I noticed is that early on after the ICO, every conversation or rumour could impact the token price, which we had no control over, so we became more circumspect with how we managed the community. We didn’t want to be giving any signals to the market that may or may not be substantiated.”
At a time where companies listed on Australia’s highly regulated stock exchange are struggling to nail compliance and disclosure, this controlled approach from a cryptocurrency company will likely be applauded by some. But Martin says Power Ledger actually took inspiration from listed companies’ compliance obligations when establishing the startup.
“If we were ASX-listed and the stock had a sudden spike, ASIC would want to know why. We don’t have formal obligations, but we’ve got a set of our own frameworks to add some legitimacy to the crypto space and keep a consistent view,” he says.
“The space is not as easy and free now as it once was.”
StartupSmart has contacted the ATO for further details about its consultations on initial coin offerings.