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Technical guide

Cryptocurrencies: Are you tax compliant?

Cryptocurrency and other forms of digital assets have created problems for tax authorities internationally with a range of inconsistent approaches being adopted across the globe.

Here in New Zealand, Inland Revenue have taken a proactive approach by outlining their view about the various tax issues this new form of asset poses. We’ve outlined these below.

Income tax: A hard line approach

Inland Revenue does not consider cryptocurrency as money for tax purposes. This means cryptocurrencies are generally not subject to the accrual requirements contained within the financial arrangement rules, where owning the cryptocurrency provides a fixed return. It’s similar to other assets like gold and therefore tax consequences generally only arise on disposals and transfers to other cryptocurrencies.

Inland Revenue have taken a hard-line approach about any exceptions to this rule. At this stage, the main exclusion is for cryptocurrency held for purposes other than resale such as using it to stake and earn rewards. If you want to apply this exclusion, be sure to maintain evidence to demonstrate this was your intention at the time the cryptocurrency was purchased.

GST: Not applicable to cryptocurrency but NFTs could be problematic

Legislative changes have been made to retrospectively amend the GST Act so cryptocurrency is not subject to GST, however, GST is applicable if you’re providing certain services like bitcoin mining for example.

Non-fungible tokens (NFTs) are specifically excluded from the amendment which may pose tax problems for traders who could potentially find themselves required to register for and charge GST. Charging GST on NFT sales will depend on whether the transaction can be zero-rated, and this would generally depend on the location of your customers.

Employment taxes: Seek legal advice

Inland Revenue have recognised that some businesses may pay their employees using cryptocurrency, and have decided any payments made in cryptocurrency would remain subject to withholding tax under the usual PAYE rules. It’s important to note this is solely a tax perspective; we strongly recommend seeking advice to ensure compliance from an employment law perspective.

Despite a range of advice issued by Inland Revenue, there are still lots of grey areas. So, if crypto is one of your main modes of currency, be sure to maintain detailed records of all transactions to ensure you can comply with your tax obligations, and to reduce the risk of incurring penalties and interest.

For further information, contact:

Anthony Morgan

Senior Manager, Tax
M: +64 27 203 7375

Murray Brewer

Partner, Tax
M: +64 27 448 8880