Cryptocurrency and Tax
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Articles by Anthony Strevens
The tax rules relating to cryptocurrency have been long been an area of confusion due to the fact that the nature of cryptocurrencies means they don’t fit neatly into any current tax laws. Now, however, IRD have confirmed their view on a variety of issues in relation to this.
The IRD use the term “cryptoassets” which covers more than just the concept of cryptocurrencies. They define these as cryptographically secured digital representations of value that can be transferred, stored or traded electronically that use some form of distributed ledger technology such as blockchain. These have various uses and can be used for payment, as security, or to purchase something specific. In general, the treatment of cryptoassets is similar to other “assets” and not at all similar to “currency”. Hence the IRD using the term “cryptoasset”.
Individuals/Investors/Mining
There is a near enough presumption that if you buy cryptoassets you are doing so with the purpose of resale, so gains realised on sale are viewed as taxable. This means you would need to calculate your profits on the income you received from cryptoassets. This income could be:
• Mining cryptoassets (such as block rewards and transaction fees, including income from a mining pool)
• Staking cryptoassets or using a staking-as-a-service provider
• Lending cryptoassets to another person (including crypto 'interest')
• Selling or exchanging cryptoassets (including mining rewards)
• Getting paid in cryptoassets for goods or services you provide
• Closing stock value of cryptoassets assuming you are actively trading them
Like any other taxable activity, you can also deduct your expenses if they relate directly to the income:
• The cost of your cryptoassets – this is generally the amount you paid for your cryptoassets including any transaction fees
• Depreciation of capital assets such as computer hardware or software
• Interest charged on money you’ve borrowed to buy your cryptoassets
• Other expenses in relation to your cryptoasset activity. For example, if you're a miner this could include electricity or rental costs.
• Opening stock value of cryptoassets assuming you are actively trading them
These amounts also need to be converted into NZ dollars as at the time of the transactions. The net profit is taxable at your marginal tax rate (i.e. there is no special tax rate for cryptoasset income).
Businesses
If you receive cryptoassets as payment for business services or products, the value of the cryptoasset you receive is the value of the sale you have made. Just like any other sale, it is taxable income. If you then later sell this cryptoasset for a higher value than when it was received, then that would be further taxable income on the difference.
In the same way, if you use cryptoassets to purchase business related goods or services, the value of the cryptoasset at the time of the transactions is a business expense.
If you use cryptoassets to pay or remunerate employees, you will need to deduct PAYE and possibly consider fringe benefit tax consequences of doing so. It’s likely that if you are doing this then the cryptoasset might be linked to the employer in some way (for example, the employer is issuing its own cryptocurrency which might be linked to shares or stocks in the company). Assuming the employer doesn’t have publicly traded shares, the calculation of the value of this transaction will be difficult.
Conclusion
Regardless of the nature of the cryptoasset itself, the IRD are taking a position that they are assets in nature and applying tax law accordingly. If you’re unsure where you sit with this and need some assistance, please get in touch with your Client Services manager at GRA. Or if you are new to GRA, you can contact us on +64 9 522 7955, info@gra.co.nz or via our website. It’s probably worth noting at this stage that GRA doesn’t accept cryptocurrency as a method of payment.
Anthony Strevens
Business Advisory Director
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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