As cryptocurrency attains a 7% adoption rate in New Zealand, with an estimated 350,000 Kiwis owning crypto (with most owned as investments), the New Zealand government and IRD become increasingly interested in cashing in on your risk taking investment activities.
Like almost everything – if you’ve made gains on your cryptocurrency, the NZ government and IRD will expect their slice. In this guide, we’ve outlined the key information Kiwi crypto users should know about how to go about Bitcoin/cryptocurrency tax in Aotearoa/NZ.
Please note that while this guide provides insights, it is essential to consult with a tax professional or financial advisor for personalized advice and accurate tax reporting. The information presented here is for educational purposes only and should not be construed as advice. With that in mind, let’s delve into the world of crypto tax in New Zealand and understand the obligations that accompany wealth creation in this innovative asset class
Tax Definition of Cryptocurrency in New Zealand
To navigate the realm of crypto tax in New Zealand, it is crucial to understand how the tax authorities define and treat digital assets. In 2017, the Inland Revenue Department (IRD), New Zealand’s tax agency, clarified its stance on cryptocurrency, classifying it as a form of property for tax purposes. This classification encompasses various types of crypto assets, including popular cryptocurrencies like BTC, ETH, and even non-fungible tokens (NFTs).
The IRD’s definition emphasizes that the tax treatment of crypto assets is based on their characteristics and usage, rather than their specific blockchain or nomenclature. This means that regardless of the type of crypto or the blockchain it operates on, the tax obligations will be determined by how the crypto asset is utilized by the individual or entity.
It’s important to note that while cryptocurrencies may resemble foreign currencies, the IRD does not classify them as such. Instead, they are treated as property, which has significant implications for taxation. Whether you’re buying, selling, exchanging, receiving crypto as income, or earning passive rewards through activities like mining or staking, these disposal events are generally subject to taxation. In the following sections, we’ll explore these activities in detail and discuss how they are taxed under NZ’s income tax regime.
Do You Have to Pay Crypto Tax in NZ?
In New Zealand, most crypto investors, whether individuals, businesses, or professional traders, are required to declare their financial activities related to cryptocurrencies to the Inland Revenue Department (IRD). Unless there are legal exemptions, the IRD expects individuals to comply with their tax obligations. This includes reporting any gains made, providing personal details, and disclosing the overall NZD value of their crypto portfolio.
The IRD, FMA and NZ Govt has implemented measures that require all VASPS (Virtual Asset Service Providers) to adhere to NZ AML (Anti Money Laundering) laws by collecting KYC (Know Your Customer). This information is then passed on request to the IRD and NZ Government, who use blockchain surveillance technology like Chainalysis to monitor your transactions, trading history and activity; to ensure tax and New Zealand law compliance.
However, it must be noted the average IRD agent is not a crypto tax expert, and it’s fact there are bigger fish to fry than the average crypto retail investor. We’d recommend staying on top of it in the meanwhile, as if you’ve purchased through a KYC’d exchange, you are certainly on the IRD’s list. And eventually, like Australians, you’ll receive a letter or a call.
As almost every event you make in crypto is taxable, some early adopters believed that holding for more favorable tax laws would reduce potential obligations. However these hopes have fallen off as New Zealand crypto tax laws further refine in established form.
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Baker Tilly, a premier cryptocurrency accounting firm in Christchurch, offers exceptional financial services. With a proven track record and expert professionals, they provide reliable solutions for businesses and individuals alike.
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Is There Capital Gains Tax on Crypto in NZ?
In contrast to some other countries, NZ does not impose a specific capital gains tax (CGT) on cryptocurrencies. Instead, all your crypto income, whether it stems from gains on disposals or crypto you earned, is combined and subject to taxation at the same rate.
What Crypto Activities Are Taxable in NZ?
In New Zealand, the tax treatment of cryptocurrency can be a labyrinth of complexities.
Understanding what cryptocurrency activities are taxable is crucial for compliance. From cryptocurrency trading and mining to staking and airdrops, there are numerous ways individuals may engage with cryptocurrencies, each potentially subject to taxation.
Taxation on Crypto Selling NZ
Any profits or losses from selling or purchasing cryptocurrencies in New Zealand are subject to taxes. The tax treatment of holding cryptocurrencies as an investment relies on your trading intentions and frequency. More info regarding taxation on crypto selling.
Gains from trading might be regarded as taxable income if you do it regularly. When crypto is sold, the gains may be taxable as capital gains tax if they were long-term investments. For taxation purposes, crypto is regarded as property in NZ. This indicates that the sale of cryptocurrency is subject to the same tax regulations as real estate transactions.
Import: You must be careful here because undercalculating your tax payment comes with penalties. You need a good tax calculator or professional to handle things in this situation.
Taxation on Crypto Mining NZ
In New Zealand, income from crypto mining operations is considered taxable income.
The cryptocurrency’s value at the time it arrives is taken into account when calculating taxable income. Associated costs like power and mining machinery can be written off. The Inland Revenue Department (IRD) counts cryptocurrency mining profits as income, just like profits from other commercial endeavors. Few more info on the IRD website.
Taxation on Crypto Staking NZ
Staking a crypto is taking part in a proof-of-stake consensus mechanism, in which owners of a particular crypto lock up funds to support network operations and gain rewards.
Staking keeps digital assets in a wallet to facilitate and verify network operations and transactions. Staking incentives are typically considered taxable income in New Zealand at the time of receipt. The staked coin market value determines the reward value during the receiving period. While it can be hard to calculate, you can use a crypto tax calculator.
How are NFTs Taxed in New Zealand?
As per the IRD, income tax applies to gains from disposing non-fungible tokens (NFTs).
Buying NFTs With cryptocurrency
Purchasing NFTs with cryptocurrency triggers a taxable event. The income recognized depends on the price change of the crypto used for the purchase since you received it.
Creating an NFT
Income from both primary and secondary sales of NFTs or NFT collections is taxable. However, if the NFT was acquired for personal enjoyment and not for profit, disposals are non-taxable, provided you can prove the purpose of the original transaction.
For NFT sales exceeding $60,000 in a 12-month period, GST is applicable. Nevertheless, selling NFTs to overseas investors is zero-rated for GST purposes.
Taxation on NZ Cryptocurrency Businesses
Using Crypto for Business Transactions
For businesses operating in New Zealand, accepting crypto assets as payment for goods and services comes with important tax implications. Such transactions are considered barter transactions, requiring you to accurately calculate the taxable income by determining the fiat value of the crypto assets in NZD at the time of receipt.
If your New Zealand business is GST registered, you are required to treat the sale as if you received the equivalent value in NZD and report the GST accordingly. It’s essential to maintain accurate records of these transactions for tax purposes.
Paying Employees with Cryptocurrency
In NZ, some employers may opt to compensate their workers with cryptocurrency assets. However, when it comes to the tax implications, certain rules apply. The two key considerations are the Fringe Benefits Tax (FBT) and Pay As You Earn (PAYE).
Viewing the IRD’s Public Rulings is an option to figure if PAYE and FBT apply to you.
How to Avoid cryptocurrency Taxes in NZ
While evading cryptocurrency taxes in New Zealand is illegal, there are legitimate strategies to reduce your tax liability within the bounds of the law. By properly harvesting losses, deducting relevant expenses, and strategically realizing profits.
Harvesting losses: Ensure you report realized losses from cryptocurrency transactions. These losses can be used to offset your overall income, effectively lowering your tax bill.
Deduct relevant expenses: According to the IRD, you can deduct cryptocurrency fees and other relevant expenses from your taxable income, providing potential tax savings.
Realize profits strategically: Consider timing the realization of crypto profits in years with lower income. By doing so, you may reduce your tax liability.
Challenges for Tax Evasion
Tax evasion has become increasingly challenging due to stringent regulatory measures and advancements in technology. Government authorities, like the IRD in New Zealand, are implementing stricter monitoring and reporting systems to detect non-compliance.
Despite these measures, some people are still attempting to find new ways around paying taxes, leveraging privacy-centric cryptocurrencies and offshore accounts.
Monero, a privacy-centric crypto, has raised concerns about its potential misuse for tax evasion due to its enhanced anonymity features. The difficulty in tracing transactions may tempt some individuals to conceal taxable income, posing a challenge for the IRD.
Consequences of not Reporting Cryptocurrency on NZ Tax Return
Failure to accurately report cryptocurrency on your NZ tax return can trigger investigations by the IRD, which has the authority to reassess your tax return for up to four years. In cases of fraud or wilfully misleading information, there is no time limit for reassessment.
Tax evasion penalties can amount to 150% of the resulting shortfall, and the Inland Revenue Department may also opt for prosecution, potentially resulting in fines up to $50,000 and imprisonment for up to five years. It is crucial to report cryptocurrency income correctly and stay compliant with tax regulations to avoid severe consequences.
What Tax forms do I need to fill out?
Once you have gathered all the necessary information for your cryptocurrency transactions, there are two ways to report your income in New Zealand. You can conveniently do so through your MyIR Account on the IRD homepage. Alternatively, you have the option to manually fill out the Individual Tax Return Form (IR3).
Crypto Tax Filing in New Zealand
The New Zealand tax year starts on April 1 and runs through March 31 of the subsequent year. Following the conclusion of the tax year, the last date for filing your taxes is July 7.
People in New Zealand use the Individual Income Tax Return (IR3) form when filing for tax. You shouldn’t leave filing your tax return until the last minute. Starting as soon as possible is advised because gathering the data you’ll need to file your taxes takes time.
While there is no legitimate way to avoid paying bitcoin and cryptocurrency taxes in New Zealand. Nevertheless, you can employ methods to lower your tax burden legitimately. You can reduce expenses, harvest losses, or realize gains during low-income years.
How are crypto-to-crypto trades Taxed in NZ?
In New Zealand, when you trade cryptocurrency for another, it is deemed a taxable disposal. Your recognized income depends on the value change of the crypto you traded, relative to its original receipt. Accurate reporting is vital for fulfilling tax obligations.
How are cryptocurrency losses Taxed in NZ?
When disposing of your cryptocurrency at a lower price than your initial acquisition cost, you’ll incur a loss. This loss can be utilized to offset your overall income, including income from your job, leading to a reduction in your tax liability. It’s essential to maximize available deductions and leverage tax-saving opportunities to optimize your tax situation effectively.
How are cryptocurrency gifts Taxed in NZ?
Gifting cryptocurrency to a friend or family member is treated as a taxable disposal.
If the value of your coins has appreciated since you received them, income tax will be applicable upon gifting. Receiving a cryptocurrency gift itself is not taxable. However, should you later dispose of the gifted coins, income tax will apply accordingly.
Cryptocurrency NZ Final Verdict
Cryptocurrency NZ firmly believes that fulfilling your tax obligations is a responsible and essential aspect of being a crypto user in NZ. While some individuals may explore P2P marketplaces and Monero to evade taxes, we do not recommend these actions.
Engaging in tax evasion can lead to severe consequences, including penalties and legal repercussions. Staying informed, seeking professional advice, and accurately reporting cryptocurrency activities will not only ensure legal compliance but also contribute to the integrity and growth of the cryptocurrency ecosystem in New Zealand.