Digital Assets: A Window into the New Economy

Changing Economies

Monetary systems around the world have faced a rather large change in the form of digital assets. In barely a decade, virtual currencies have grown and become embraced around the world in many forms. Here we take a look at what digital assets are and how they are being used on a global scale.

Foundational Concepts of Digital Assets

To understand digital assets it is important to understand a range of foundational concepts and terms such as blockchain, DLT, DeFi, Decentralised Exchanges, Staking, and more. The information in this blog will only provide a brief overview of this information. For more details you can download the full paper on Digital Assets: A Window Into the New Economy, by our Founder John Marcarian.


In very simple terms a blockchain is an online record of transactions. This could include money, exchange of goods, or exchange of information.

Each transaction creates a record that is gathered with further transaction records into blocks. These blocks are linked together with cryptography.

Blockchain stores these records across many locations at the same time. This means that if any of the information in a blockchain is changed, everyone involved in the network has to consent to the changes. Since the information can only be changed if every record is changed at the same time, it is difficult to hack into, and therefore potentially more secure, transparent, and cost effective to hold than traditional databases.


The online record of the data and transactions that comprise blockchains is typically known as a distributed ledger. Any technology that utilises this type of system is collectively known as DLT.

Blockchain is one form of DLT.

As we are only in the early stages of DLT we are still discovering all the potential applications that it could be used for.

Decentralised Finance (DeFi)

DeFi is, simply put, a term that covers a large range of applications within the public blockchain world that are distributing traditional economies. It refers to the financial applications that utilise blockchain technologies. This is in contrast to the centralised financial markets where all the risks and control are with the central system, such as the banks and financial institutions.

Smart contracts are contracts that are automated in programming languages so that they are accessible by anyone using the internet. They allow individuals to engage in financial applications without relying on an intermediary.

DeFi now provides a fully functioning economy that is accessible to users across the globe via the internet. This allows individuals and businesses to buy and sell, lend and borrow, and invest with digital currencies.

Decentralised Exchanges

One of the central functions of DeFi is decentralised exchanges. This means that users can exchange their assets without needing to rely on a centralised system or intermediary. Two examples of decentralised exchanges are the UniSwap and the Pancake Swap.

The Uniswap allows users to swap their tokens even if there is not a user on the other side of the trade.

The Pancake Swap is essentially a newer alternative option to the Uniswap, with a very similar user experience. It is driven by strong marketing strategy that has rapidly built community engagement and dedicated followers.

Binance Smart Chain

In September 2020 a blockchain service was introduced that allows developers to use smart contracts in order to build their own decentralised apps. This is Binance Smart Chain.

It is one example of how DLT is rapidly expanding and increasing in functionality as the world continues to embrace this technology.


A wallet is an app that functions essentially like a virtual wallet for your virtual currency. While you don’t have to have a wallet, it helps keep all your digital assets in one place. Just like a real wallet with physical cash.


Staking is where the owner of cryptocurrencies locks their holdings into their crypto wallet in order to receive rewards.

While blockchains typically rely on the process of mining to add new blocks to the blockchain, staking involves locking up your cryptocurrency coins so that they can be randomly selected to create a block. Larger stakeholders typically have a higher chance of being selected as the next block validator.

Different blockchain networks then reward staking accounts in different ways and using different factors.

Some coin holders also pool their resources in order to create a staking pool and increase their chances of being selected for validating blocks and rewards.


To help reduce volatility around cryptocurrencies, stablecoins offer digital assets that are tied to a stable, physical asset, such as gold or fiat currency. This keeps the value more stable.

To The Future

With rapid growth occurring in digital assets, this complex world gives users around the globe the tools to partake in a decentralised system of finance. We are still watching to see how this economic system will continue to be shaped and how it will influence the economy around it. While there are many potential advantages to the decentralised system, there are also many issues to be addressed.

One of the issues is how these digital assets are taxed. We consider this issue in the blog on International Taxation of Digital Asset Transactions. 

Digital Assets: A Window Into the New Economy has been written by our Founder, John Marcarian 

John is an Australian Chartered Accountant with over 25 years of experience.

He has a deep understanding of digital assets and the Fourth Industrial Revolution presently underway around the world in the area of blockchain and digital assets. 

John’s passion for digital assets has led him to co-found, NeoFlow Asset Management Limited, (with Joshua Boles and Richard Stromback), a funds management business that seeks alpha for its investors in all classes of digital assets and decentralised finance.

A recognised tax specialist in digital assets, John has a qualification from the MIT Sloan School of Management in BlockChain technologies. 

John regularly works with companies issuing tokens and other forms of digital assets, and is one of the very few global tax specialists that has founded a funds management business in digital assets. 

This unique blend of skills gives John a practical day to day knowledge of the business challenges faced by entrepreneurs in the digital asset market.

International Taxation of Digital Asset Transactions

The Growth of Digital Asset Transactions

Digital assets have become a rapidly growing phenomenon over the past decade. With this new growth comes the question of how to tax these assets.

Guidance on how to account for the vast array of digital assets is currently lacking, as is an international consensus on how to tax digital assets.

To understand more about what digital assets are and how they are spreading globally, we recommend reading our blog and downloading the paper on Digital Assets: A window into the new economy.

Different Approaches Around the Globe

Some countries currently regard digital assets as being currency for tax purposes. This includes Belgium, Italy, and Poland. This means that realised gains and losses would be taxable.

Many others, including Australia, view Digital Assets as a form of intangible assets, with gains and losses being treated under the capital gains regime. For countries such as Singapore and Hong Kong, classifying digital assets as property means that individuals avoid taxation, as there are no capital gains taxes applicable for individuals.

Mining Digital Currencies

Virtual currencies can be created through what is known as the mining process. This is where rewards are generated via a proof of work protocol, rather than through purchasing the digital assets. The question arises as to whether we should be taxing the digital currencies at this point of creation, or not until they are actually disposed of and there is a measurable flow of revenue.

             Mining: Taxation at the Point of Creation

One potential taxation point for digital assets is at the point of creation.

Many major companies including Finland, New Zealand, Japan, Norway, the United Kingdom, and the United States, consider such creation events to be taxable as ordinary income, with the costs of production allowed as a deduction. When the digital assets are later sold, this is treated as a capital gains event and taxed under the relevant capital gains regime.

Some countries, including Australia, Canada and Singapore, only tax the creation of digital assets through mining activities if the activity takes place as a business activity (as opposed to a hobby).

             Mining: Taxation on Disposal

Many countries ignore the creation of digital assets through mining as a taxation point. Instead, the first taxation point is the disposal of the digital currency. In these countries the total disposal value is included as assessable income (less allowable costs incurred to mine the digital asset).

Usually countries that tax digital assets this way treat the income as a capital gain.

             Mining: Taxation on Receipt

In some taxation jurisdictions the mining activities are taxed on a receipts basis when those activities are carried on as a business. This means that all mined digital assets are treated like stock and included in business income as income, losses or sales revenue. Deductions are treated in the same manner as any other business deduction.

Disposal of Virtual Currencies

Regardless of the different taxation options, most countries agree that disposal of a digital asset is a taxation event. Disposals can occur through loss, exchange, or sale of the digital asset.

             Exchange for Fiat Currency

Most major economies regard the disposal of digital assets for fiat currency to be a taxable event. Although there are notable exceptions, such as Italy, where such transactions are not taxed unless they are treated as speculative trading.

             Exchange for Other Virtual Currency

In most countries the exchange of one digital asset for another digital asset is considered to be a taxable exchange. Other countries however, do not consider such exchanges to be taxable. This is possibly due to the difficulty in accurately valuing the realised gains or losses on such exchanges.

Other countries, such as Australia, Belgium, and Japan, vary their treatment of these type of exchanges depending on the type of owner and how the virtual currency is expected to be used.

             Exchange for Goods and Services

With virtual currencies becoming more acceptable globally, it is becoming common for these digital assets to be used to purchase goods and services. This typically means that the person using the virtual currency to make a purchase has realised a taxable event. The person receiving the virtual currency as payment, likewise is in receipt of taxable income at that same value. The tax treatment then depends on that country’s personal income tax rules.

             Exchange for no Value

Other situations of disposal may include gifting the digital asset, loss or theft. In these situations the owner of the digital asset has disposed of their holding but not received anything in exchange.

Some countries tax the recipient of gifts, others tax the disposal at the deemed value of the asset being disposed.

When it comes to theft or loss, this is typically deductible if the individual is running a business and the digital assets are trading stock, but not if they are holding the assets as private individuals.


Creating a cohesive treatment for digital assets, let alone a consensus on how to tax these assets, is a long way from being realised. This will require a lot of research and collaboration to come to fruition as the world continues to embrace the use of virtual currencies on an ever increasing scale.

Our Founder, John Marcarian, goes into further detail in the International Taxation of Digital Asset Transactions paper.

International Taxation of Digital Asset Transactions has been written by our Founder, John Marcarian

John is an Australian Chartered Accountant with over 25 years of experience.

He has a deep understanding of digital assets and the Fourth Industrial Revolution presently underway around the world in the area of blockchain and digital assets. 

John’s passion for digital assets has led him to co-found, NeoFlow Asset Management Limited, (with Joshua Boles and Richard Stromback), a funds management business that seeks alpha for its investors in all classes of digital assets and decentralised finance.

A recognised tax specialist in digital assets, John has a qualification from the MIT Sloan School of Management in BlockChain technologies.

John regularly works with companies issuing tokens and other forms of digital assets, and is one of the very few global tax specialists that has founded a funds management business in digital assets. 

This unique blend of skills gives John a practical day to day knowledge of the business challenges faced by entrepreneurs in the digital asset market.

What is a Trust?

1. What is a trust?

In essence a trust is simply a relationship where one person (the trustee) is under an obligation and holds or uses assets (trust property) for the benefit of another person (a beneficiary) for some object or purpose.
Thus, any trust has four essential elements:

  • Trustee;
  • Trust Property;
  • Equitable Obligation;
  • Beneficiaries;

To restate the above in slightly more legalistic terms “a trust is a fiduciary relationship where one person, a trustee, holds an interest in property but has an equitable obligation to use or keep that property for the benefit of another person(s) (beneficiaries) for some committed object or purpose.

There are many types of trusts, however the common ones are:

  • Express Trusts;
  • Settled Trust;
  • Discretionary Trusts;
  • Unit Trust;
  • Will Trust;

Express Trusts – are trusts created by the express and intentional declaration of the settlor. Trusts dealt with in practice usually evidence this declaration by way of a formal trust deed.

Settled Trust – one form of an express trust is a settled trust created by settlor (or director). The settlor will intentionally create a trust by gifting the initial trust property to be held on trust by a trustee under an equitable obligation.

The most common trusts we implement are a discretionary trust, unit trust and a will trust (or deceased estate).
Discretionary Trust – a common settled trust dealt with in practice is a discretionary trust. A discretionary trust, which may also be known as a family trust, allows the trustee (who is usually the head of the family) to exercise discretion on an annual basis as to which beneficiaries will receive a distribution and to what extent each beneficiary shall benefit.

Unit Trust – Unit trusts are commonly used when arms length parties wish to enter into a commercial undertaking together.

Each party’s entitlement to income and capital from the trust is proportionate to the units held.

Will Trust – A will trust or a deceased estate arises on the death of a person. Upon death, property of the deceased passes to his or her estate.

The fiduciary obligation to administer the estate and the assets therefore falls upon the executor or administrator who assumes the role of trustee in respect of the property of the deceased estate.

The beneficiaries of a deceased are those nominated in the Will of the deceased.

2. Why choose a trust?

Issues to be considered when choosing a trust are as follows;
•    Control
•    Simplicity/complexity
•    Liability limitation
•    Costs – establishment and maintenance
•    Life span
•    Formalities/adherence to rules
•    Reporting and disclosure requirements
•    Acceptability to financiers
•    Admission of new investors
•    Selling out/winding up
•    Family disharmony/asset – sheltering
•    Retirement planning
•    Ease of future restructure

Should the concept of a trust satisfy your commercial objectives, the following taxation issues will need to be considered:
Taxation issues
•    Overall level of tax;
•    Acceptability by authorities;
•    Double taxation;
•    Restructuring tax consequences;
•    Employee on costs;
•    Tax payments/tax rate;
•    Flexibility of distributions;
•    Tax losses trapped;
•    Dividend streaming;
•    Type of business to be carried on;

3. How do you set up a trust?

If you have made the decision that a trust is an appropriate structure the next step is to establish a trust.
Approaching a Solicitor
Prior to approaching a solicitor you should not only have considered the commercial and taxation issues noted previously, but you should also have determined:
•    The purpose and activities of the trust;
•    Nominated beneficiaries and future beneficiaries;
•    Who is to be the trustee and settlor;

Review and Understanding
The solicitor will draft the trust deed in accordance with the client’s requirement and at this stage it is critical that a thorough review is done to ensure that the trust deed (or governing rules) reflects your commercial and legal requirements and allows flexibility for future contingencies.
If a solicitor who specialises in trust law is consulted you will often receive an information booklet setting a basic outline of a trust for administration purposes.
At this stage also it is critical that you read through the draft deed and that questions are addressed prior to creating the trust. In this regard the family or business solicitor (if he or she did not draft the deed) may be used to add his/her comments and to provide a different perspective and extra level of comfort to both the client and accountant.

4. Parties to a trust

The Settlor

The Settlor is the person who brings the trust into being.

Typically the settlor is a family friend or business associate who will contribute initial capital to settle the trust.

For Australian tax purposes it is important that there is not any reimbursement by the trustee in respect of distributions made for children under 18 years old if a parent, who will usually act as trustee or a director of the trustee company of a family trust, settles or creates the trust.
It is also advisable that the advisers to the trust are not the Settlor, for the reason that many trust deeds contain clauses that the Settlor is excluded from any benefit or income under the trust.

The Trustee

A Trustee is the person who holds an interest in trust property for a committed trust object or purpose.
In a discretionary trust situation the trustee exercises control over trust property so the trustee can deal with it on behalf of beneficiaries.
The choice of a trustee is worth proper consideration for the reason that the trustee’s powers and duties are significant. In that regard the person who is appointed to the position must understand his/her role and responsibilities.
Trustees may be individuals but more commonly will be companies to limit liability.  In a family trust a parent or both parents will usually act as directors of a corporate trustee.

The Appointor or Protector

The Appointor or Protector is the person or persons who have the authority under the trust deed to appoint or remove the trustee of the trust. As such the appointor is often said be the controller of the trust.
Many trust deeds empower the appointer to remove the trustee and appoint a new trustee at any time in writing.
Unless specified in the trust deed or in the will of the Appointer, on the death of the Appointor, the legal personal representative of the deceased Appointer will become the Appointor.

Income Beneficiaries

These are beneficiaries who may at the discretion of the trustee receive entitlement to trust income. Most modern trust deeds are drafted very widely in this area to give the trustee very wide discretionary powers for the advantage of flexibility of distribution for taxation purposes. Common classes of beneficiaries are:
•    Family members, including children;
•    Unborn children of family members such as direct lineal descendants;
•    Eligible entities in which the abovementioned beneficiaries of the trust itself has an interest (such as a corporate beneficiary)

Capital beneficiaries

These are beneficiaries who are entitled to the corpus of the trust or the capital in the trust.
This entitlement does not usually arise until vesting day, or the day the trust is to be wound up, but entitlements to capital or corpus of the trust may occur earlier if permitted by the trust deed or agreed to by all beneficiaries.

Default Beneficiaries

A default beneficiary is simply the beneficiary to whom a distribution may default to in the absence of any other nominated beneficiary.
For example should an amended assessment be raised increasing assessable income that income will be distributed primarily in accordance with the relevant trustee’s distribution minute.

However in the absence of any guidance contained therein or in the event the resolution or minute cannot be located or was not made for the reason there was considered to be no income, the distribution may revert to the default beneficiary rather than be assessed in the hands of the trustee at the top marginal rate.
There are very few restrictions on who may be a beneficiary.  A beneficiary may be a resident or non-resident natural person (such as a company) or any legal entity.
Further, persons who have not yet been born or legal entities that have not yet come into existence may subsequently become beneficiaries.  However it is important to nominate who will be and who can become a beneficiary on drafting of the deed.

A trust, as stated above, is a fiduciary relationship.

The adding of unanticipated beneficiaries at a later stage may, in a worst case scenario, lead to a resettlement of a trust or the ceasing of the former relationship and creation of a new relationship, being the creation of a new trust.
Should there be considered to be cessation of one trust and the creation of a new trust, a myriad of unwelcome income tax, capital tax and stamp duty issues may arise.
Thus, upon reviewing the deed detailed consideration must be given to who and who might potentially become income, capital and/or default beneficiaries.

Contact us

Should you be interested in discussing further how a trust may suit your purposes please do not hesitate to contact us at our offices.