Income Tax Considerations
The Income Tax Act 2007 (ITA) stipulates that any amount is considered income if it falls under a provision in Part C of the Act or under ordinary concepts. In the context of cryptocurrency, income can be generated through various means, whilst not exhaustive, below are some typical hallmarks:
Trading: Profits from buying and selling cryptocurrencies are taxable if there is sufficient regularity or an intent to operate as a business or professionally trade.
Mining: Income derived from mining cryptocurrencies is considered taxable, based on the cryptocurrency's value at the time of mining.
Staking and Airdrops: Rewards obtained from staking or airdrops are also classified as income and are subject to taxation.
Deductions
While Section DA 1 of the ITA permits deductions related to deriving assessable or excluded income, Section DA 2 imposes general limitations, including the capital limitation that disallows deductions for capital expenditure.
PAYE and FBT
Inland Revenue (IR) has deliberated the treatment of remuneration paid in cryptocurrency to employees in relation to Pay as You Earn (PAYE) or Fringe Benefit Tax (FBT). Currently, cryptocurrency remuneration for employees is likely to be subject to PAYE, similar to cash remuneration.
GST Implications
The Goods and Services Tax (GST) Act 1985 applies to cryptocurrency transactions. However, the application can be intricate due to the unique nature of cryptocurrencies. Generally, cryptocurrency supply itself is not subject to GST, but transactions involving cryptocurrency for goods and services are subject to GST.
Compliance and Reporting Requirements
Taxpayers engaged in cryptocurrency transactions must diligently maintain accurate records of their transactions, encompassing dates, values, and the nature of each transaction as there are stringent reporting and disclosure obligations.
The tax treatment of cryptocurrencies in New Zealand necessitates a thorough understanding of the current tax laws. As the technology and its applications progress, IR continues to provide guidance and may release additional public statements to clarify the tax implications of cryptocurrency transactions.
At present, IR have confirmed that they are honing on taxpayers who actively deal in cryptoassets but lack disclosure to IR. IR have invested in significant technology and tools that can detect crypto activity for example through banking records.
At Bellingham Wallace, we have a dedicated tax team that specialise in reviewing cryptocurrency transactions and determining tax treatment. Our team have also successfully made Voluntary Disclosures on behalf of our clients to IR, thus minimising their risk of penalties and interest.
