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Got crypto? Pay tax – A quick look at IR's new crypto-asset guidance

08 Sep 2020

Inland Revenue has this week released new guidance about how it taxes crypto-assets such as cryptocurrencies, with the message that individuals and businesses must pay income tax on their assets.

The new guidance aims to provide more certainty for New Zealand taxpayers who hold crypto-assets, and to help people ‘get things right from the start’.

Inland Revenue spokesperson Tony Morris says that there are no ‘special’ rules for crypto-assets in New Zealand, and the new guidance aims to clarify how normal income tax rules apply to these crypto-assets.

Crypto-assets can be bought, sold, exchanged, mined, and used as a form of payment. They can also earn staking rewards, otherwise known as ‘crypto-interest’.

“Essentially, crypto-assets are treated as a form of property for tax purposes. What people make from selling, trading or exchanging crypto-assets is taxable,” says Morris.

Tax returns must include crypto-asset income as either ‘other income’, business income, or self-employed income.

Individuals and businesses must also keep accurate and complete crypto-asset records, and must keep these records for at least seven years.

“There are details on how to work out crypto-asset income and expenses; how to calculate the New Zealand dollar value of crypto-assets and information on the accurate and complete records that need to be kept,” says Morris.

Crypto-asset tax for individuals

New Zealand tax residents who buy, sell, trade, exchange, or mine crypto-assets must pay income tax. Non-resident taxpayers are subject to New Zealand tax if their crypto-asset income has a source in New Zealand.

“This updated guidance allows people to work out what tax they need to pay when they sell, trade, swap, lend or mine crypto-asset transactions. They can find out what records to keep and work out what they need to put in their tax return,” says Morris.

“It’s also a good opportunity for people to review the tax positions they have taken previously and make voluntary disclosures if their income from crypto-assets hasn’t been returned correctly.”

Crypto-asset tax for businesses

These taxes apply to businesses that trade in, or use, crypto-assets.

Businesses that operate crypto-asset mining, dealing, or exchange must pay income tax on their profits. 

There is guidance about what defines a crypto-asset mining operation as a business, including the size of the operation, the length of the operation, the regularity of mining activity, and how much people make from mining.

Businesses that trade in crypto-assets must also pay income tax on their profits.

Those that don’t fit the definition of crypto-asset businesses but do use crypto-assets in their business, must also account for these assets in the same way as any other business asset. Therefore, must pay income tax.

Businesses can pay employees in crypto-assets, however, these are still subject to standard PAYE and fringe benefit taxes. In cases where employee share scheme rules apply to crypto-asset payments, these are still subject to income tax.

“As the industry is constantly evolving, Inland Revenue will continue to consider other crypto-asset-related tax issues as they emerge,” Morris concludes.

For further information, visit Inland Revenue’s crypto-assets website: https://www.ird.govt.nz/cryptoassets