Crypto assets are increasingly becoming ingrained in the traditional financial system. A recent study has revealed that although the cryptocurrency is still a growing market in New Zealand, the country’s usage rate is still good. About 64% of Kiwi adults know what cryptocurrency is, placing them ahead of countries like Russia and the US.
In 2019, New Zealand was the first nation to allow companies to pay employees their salaries in cryptocurrency. Since then, the IRD has introduced several new tax guidances for crypto assets. If you plan to invest in any digital asset, it is best to understand the crypto tax in New Zealand beforehand.
It is a common misconception that because some crypto assets are decentralised, they are free from any regulations. But that is not the case in New Zealand. Here are six tax rules you should be aware of:
IRD Will Track Cryptocurrency Trades
IRD is now requesting cryptocurrency exchanges to share transaction data with them. You need to declare crypto assets as an individual or business during tax returns. If you fail to do so, IRD can use the data from exchanges to identify investors who have crypto assets tied to their income.
Transaction data can also include your wallet details, which will allow IRD to delve further into our crypto investments.
Tax on Buying and Selling Crypto
According to the latest Cryptocurrency Adoption Index survey, an estimated 324,000 people said they owned cryptocurrency. The amount you get from buying or selling crypto will be considered taxable in most cases. Even if you exchange one crypto asset for another, the amount will be taxable.
You have to pay tax if the crypto asset has been acquired for selling or exchange trading or a profit-making scheme.
Similarly, if you incur a loss because of these activities, you might also be able to claim a loss.
Tax on Mining Crypto
Mining is adding new blocks to the network after verifying the transaction. Any rewards or transaction fees that you earn from mining will be taxable. Also, if you sell or exchange the reward in future, that amount will be taxed.
If you are mining crypto assets, earning profit or ordinary income from the services, or plan to dispose of assets, you will have to pay tax on the amount generated.
Tax on Business Transaction That Accepts Crypto Payments
When businesses use crypto assets as a form of payment for goods or services rendered, the exchange is known as a ‘barter transaction’. These digital assets will be considered as a part of business income. When filing returns, you need to calculate the value of the digital assets in New Zealand dollars (NZD).
The amount will be taxable when you sell or exchange the crypto received from a barter transaction, which is still part of your business profit. To avoid being taxed twice, claim a deduction on the cost of the crypto when you first receive them.
Crypto Tax Rules for Resident, New or Returning Resident, Non-Resident
You will pay tax on your global income if you are a resident. Crypto activities under purview are buying, selling and mining.
If you are returning or a new resident, you may receive a four-year grace period. You may not be taxed on most of your offshore income during this period.
If you are a non-resident, you will pay tax only if the income or gain is New Zealand sourced.
Declare Crypto Trades During Tax Returns
You need to file a tax return for your crypto activities. First, calculate the value of the crypto transaction in NZD and then prepare an income and expenses sheet.
You need to have information such as type, unit and value of the crypto asset, type and date of transaction, exchange records, bank statements and wallet information ready.
If you buy, sell, exchange, mine or staking crypto assets, you will have to pay tax. According to the rules of crypto tax in New Zealand, you also need to provide complete and accurate information on crypto transactions when filing for tax returns. Therefore, ensure you are well-versed with tax laws to avoid issues later.