Tim Doyle

With the increased popularity of cryptocurrency, countries have begun to create tax laws specifically targeted at crypto transactions. New Zealand has followed suit and has aligned with many other countries’ suggestions for taxing crypto, including the characterization of cryptocurrency and what constitutes a taxable event. New Zealand is unique in that the Inland Revenue Department (IRD) generally does not have a capital gains tax. This article will explore how New Zealand’s IRD views cryptocurrency and how cryptocurrencies are taxed. Be sure to listen in to the interview above with Tim Doyle for a more detailed explanation of New Zealand cryptocurrency taxation!

Classification

The New Zealand IRD currently classifies cryptocurrency as property that exists virtually. As such, cryptocurrency should be treated as property for taxation purposes. An important classification to note is mining. Mining crypto is considered a business and the proceeds are taxable as income, however the expenses incurred from purchasing equipment can be deducted.

Calculation: Income Tax on (Proceed) — (Cost Basis)

• Proceed refers to how much your coin was worth at the time of it’s sale.
• Cost Basis refers to how much your coin cost to acquire.

Example: If you purchase 1 BTC for $10,000 NZD (your cost basis) and sell it for $15,000 NZD (proceed), $5,000 NZD would be subject to income tax ($15,000 — $10,000).

Important dates

New Zealand’s tax year runs from 1 April to 31 March. 7 July is the due date for individuals filing without a tax accountant, with individuals filing with an accountant having until 31 March to file.

Taxation

New Zealand does not usually have capital gains tax, occuring only in rare instances. The IRD has two primary types of taxation methods: income and goods and services tax (GST). Currently all New Zealanders must pay income tax on cryptocurrency proceeds because they are considered taxable events.

The tax an individual pays on crypto depends on their individual income tax rate. If an individual has made income from crypto, an IR3 form needs to be filled out and most individuals will need to request a change to an IR3 filer. It remains unclear whether or not the GST act applies to crypto.

Taxable events

Any type of cryptocurrency transaction that results a tax liability is considered to be a taxable event. As noted previously, mining cryptocurrency is considered a profitable event and is classified as a business. All proceeds are taxable, with equipment costs serving as deductions.

Common taxable events:

• Buying and selling crypto
• Trading crypto for crypto
• Buy crypto and then using crypto to buy other goods and services (also could potentially result in a double tax)

Buying and holding crypto is not a tax event.

GST Act

The goods and services act imposes a 15% tax on goods and services on imported goods. New Zealand law remains unclear about whether the GST Act should be applied to cryptocurrency due to crypto’s non-physical nature. For now, owners of crypto should keep detailed records of their trading activity as the IRD are currently reviewing the applicableness of the GST Act on cryptocurrency.

Additional Resources:

https://www.newzealandnow.govt.nz/living-in-nz/money-tax/nz-tax-system

http://www.legislation.govt.nz/act/public/1985/0141/143.0/DLM82299.html