IRD seeks input on DeFi tax rules - submissions close tomorrow

WELLINGTON - Inland Revenue has sought public input on how existing tax rules apply to decentralized finance transactions, with submissions due by 5pm tomorrow. The outcomes could reshape compliance for New Zealand's estimated 300,000 to 400,000 cryptocurrency users.

It came as DeFi protocols have gained traction among Kiwi investors, with users and the Inland Revenue noting the need for clarity amid growing complexity in applying traditional tax frameworks to blockchain-based finance.

Inland Revenue (IRD) has released a feedback request and discussion paper explaining how New Zealand's current tax rules might apply to common decentralized finance (DeFi) activities in crypto.

The paper, called "Income tax – wrapping, bridging, lending, borrowing and staking cryptoassets

" (reference IRRUIP18), came out on 29 January 2026. It sets out IRD's initial thinking on these topics under the Income Tax Act 2007.

Submissions close tomorrow at 5pm, 12 March 2026.

Submissions must quote the reference IRRUIP18 and go to: Public.Consultation@ird.govt.nz.

The page can be viewed here.

The IRD currently treats cryptoassets as property for tax purposes, not as currency. This means when you dispose of crypto (sell, trade, exchange or give it away), it can create taxable income in several ways: as ordinary income, business income, profit from a scheme, or from property bought to resell.

Here are the key activities covered, explained simply:

• Wrapping - This is changing crypto into a wrapped version to use on a different blockchain (for example, turning ETH into wrapped WETH for another network). IRD sees this as a disposal because you exchange one asset for another different one, even if the value stays similar. It could trigger tax if there's a gain.
• Bridging - Moving crypto from one blockchain to another through a bridge service. This usually involves multiple steps: handing over your original crypto and receiving a version on the new chain. IRD views each step as a disposal and acquisition, so tax may apply if the value changes and creates a profit.
• Lending - Putting your crypto into a liquidity pool or lending platform to earn interest. You give up your crypto and get a token (like a liquidity provider token) in return. IRD considers this a disposal. Any rewards or interest you receive count as taxable income when you get them.
• Borrowing - Using your crypto as collateral to borrow other assets (often over-collateralised, meaning you lock up more value than you borrow). This can involve disposals when you hand over collateral or receive borrowed funds. Some loans might fall under "financial arrangements" rules, spreading tax over time.
• Staking Locking up crypto to help secure a blockchain network and earn rewards. The rewards are taxable income when received. If staking involves pooling or handing over control of your assets, that step might count as a disposal too.

The paper stresses that people must keep good records of all these transactions, including dates, values, costs and what happened.

The IRD has released this paper because DeFi use is growing, and the old tax rules (designed before blockchain) create uncertainty. The consultation period lasted six weeks, which is shorter than some other tax consultations, showing the topic's priority.

For scale: In 2024, IRD identified 227,000 unique crypto users in New Zealand who made about 7 million transactions worth $7.8 billion. Other estimates put user counts at over 350,000 New Zealanders.

While newer figures vary slightly, the numbers show hundreds of thousands of Kiwis are involved in crypto, with billions in activity each year.

This paper does not make final rules - it shares IRD's starting position and asks for feedback on how these activities work in practice, any gaps in understanding, and real-world issues.

Final guidance will come later, but the views signal closer attention to DeFi as tools like the OECD Crypto-Asset Reporting Framework begin in April 2026, giving IRD more data on transactions.

BlockchainNZ and Cryptocurrency NZ have both lodged submissions.

Nic Turnbull, co-founder of Crypto Consulting NZ

, Cryptocurrency NZ and member of the Blockchain NZ

Council described the consultation as addressing a mismatch between old tax laws and new technology.

"Their starting position is that most of these activities trigger a taxable disposal, so every time you move crypto through a protocol you could have a tax bill to work out."

He pointed to everyday challenges for users.

"Honestly it's a bit of a mess for ordinary people," Turnbull said.

"Wrapping ETH to use on another network shouldn't be a taxable event, your economic position hasn't changed, but under IRD's current thinking it is."

Businesses faced steeper hurdles.

"For Kiwi businesses building on DeFi it's even worse, you can't build with confidence when you don't know if interacting with your own tech creates a tax liability," he said.

Turnbull urged participation before the deadline.

"Submissions close this Thursday so it's pretty time sensitive if anyone wants to have their say," he said.

The paper's views aligned with broader trends, where DeFi users risked unexpected tax bills from routine interactions, potentially deterring adoption without clearer rules.

Turnbull advocated for tailored approaches.

"Our view is crypto needs its own rules, full stop," he said.

"Shoehorning it into property tax laws written before blockchain existed just doesn't work."

He proposed practical relief.

"We also want to see a $1,000 de minimis GST threshold for everyday purchases, buying groceries, coffee, that kind of thing," Turnbull said.

"Nobody should have to file a tax calculation because they bought a flat white with crypto."

Such changes could ease burdens on New Zealand's crypto community, encouraging growth and innovation while maintaining fiscal integrity.

Matt Shallcrass, New Zealand crypto tax expert and director of Optima Chartered Accountants

, viewed the consultation as a sign of DeFi's maturation.

"It indicates that IRD see DeFi activity as becoming mainstream and that clearer guidance is needed," Shallcrass said.

"Many of the current tax rules were designed for traditional investments, which makes applying them to decentralised protocols complex."

He saw it as a chance for improvement.

"This is a good opportunity to clarify how activities like staking, lending and liquidity should be treated," he said.

Shallcrass highlighted benefits for the sector.

"Greater tax clarity would be positive for the NZ crypto community," he said.

"Uncertainty is one of the biggest barriers for compliance."

On an ideal framework, he emphasised pragmatism.

"It should focus on clear taxable events and practical compliance," Shallcrass said.

"In most cases tax should arise when value is realised or when a user receives an actual economic benefit, such as staking rewards."

His perspective echoed calls for rules that matched DeFi's realities, avoiding over-taxation of non-economic shifts.

The consultation's outcomes could influence how Inland Revenue finalises guidance, impacting users as reporting ramps up next month.