New Zealand offers a robust legal framework for cryptocurrencies and generally views Bitcoin and co. as having a lot of potential for its economy. The Inland Revenue Service, the Reserve Bank of New Zealand and the Financial Markets Authority have all given out official statements and reports on how cryptocurrencies are treated in the country. Recently, the IRS has also published rules and guidelines for salaries and bonuses paid in crypto.
Cryptocurrencies in New Zealand
In April 2018 the IRD released its guidance on the tax treatment of cryptocurrencies. It was argued that any virtual currency is officially viewed as property, instead of foreign currency. This means that, according to the current legal situation in New Zealand, Bitcoin and co. are subject to the Goods and Services Tax (GST). In reality though, cryptocurrencies can also be taxable income if an individual or company receives them in the form of salary or payment. Aside from that, ICOs are seen as means of businesses ‘to promote innovation and flexibility in financial markets‘ and are defined as financial products.
The Taxation of Cryptocurrencies in New Zealand
New Zealand offers a robust legal framework and advice on taxation of cryptocurrencies. Generally, individuals have to be aware that income tax applies to them and businesses are bound to the country’s corporate income tax.
For individuals, the purpose of the acquisition is an important factor to determine whether and how the virtual currency is taxed. If a person buys crypto simply to sell it or exchange it again, then the proceeds are subject to taxation. When filing for a tax return, any losses made through trading can also be offset against other sources of income at the end of the tax year (31st of March).
Natural persons who receive salary or wage in the form of virtual currency have to be aware that regular income tax applies. The rate for this can range between 10.5% to 33%. Any received income below the NZD 14.000 mark is tax-exempt. The issue of salaries and wages paid in cryptocurrencies will be discussed in the next section of this blogpost.
For businesses, any payment or income received in cryptocurrencies is subject to corporate income tax (CIT), which currently is at a flat rate of 28%. It is important to note that while there are no local or municipal taxes in New Zealand, they do consider the business’ worldwide income as the base for taxation. For non-resident companies though, they only consider their New Zealand-sourced income.
The IRD also requires the natural persons and businesses to report the value of the received cryptocurrency in New Zealand Dollars at the time of acquisition or transaction. They recommend having this done by a cryptocurrency merchant processor or through the use of a reputable exchange. For some alt-coins it may also be necessary to convert them to any fiat currency first and then use the official conversion rate for NZD. However, taxation does not only apply when crypto is cashed out into NZD: any realised gains or losses are subject to taxation and need to be recorded when they occur. Mining is also considered an activity aimed at making profit and therefore any mining-related fees or rewards are subject to income tax.
Aside from all that, a standard seven-year-period of record keeping applies. In crypto-time this seems like an eternity, so it is highly recommended to keep track of one’s transaction history through the use of mobile or desktop wallets. The government also highly recommends using accounting and tax reporting software specifically tailored to the quick nature of virtual currency to be on the safe side.
Salary and Wages Paid in Cryptocurrency
In August 2019, the IRS issued binding rules and guidance for salaries and wages paid to individuals in cryptocurrencies. Generally, the IRS has stated that they consider it legal to be paid in virtual currencies and have given out information for companies and employees on how the taxation works. The official tax information bulletin given out by the IRS can be found here.
However, the ruling only applies to employees who receive income on a regular basis in the form of cryptocurrency, but not to self-employed individuals and freelancers. Specifically, the ruling is also limited to wages and salaries paid in cryptocurrencies that can be directly converted to a fiat-currency on an exchange. Bonuses, in addition to income, can also be paid in cryptocurrencies and are subject to income tax. This ruling comes into effect in September 2019 and will last for three years.
Recent Developments in New Zealand
Even though the general legal framework of cryptocurrencies in New Zealand is safe and sound compared to other nations, the country does not acknowledge Bitcoin and co. as currencies or legal tender, but still categorizes any virtual currency as property. The fact that wages and salaries are now seen as a legal form of payment does indicate though, that the IRS wants to take a progressive stand on the legal treatment of cryptocurrencies.
Free Crypto Tax & Portfolio Software
In recent years, it has been observed that the trade in cryptocurrencies such as Bitcoin, Litecoin and Ethereum has steadily increased. However, many cryptocurrency owners do not consider that the profits or losses from trading cryptos are taxable. Therefore Blockpit offers software that meets the requirements for traders of Bitcoin, Ether and Co. Besides the webapp Blockpit also offers a mobile app that is free for iOS and Android. With the API import, transactions can be imported from different exchanges without much effort. Taxes on cryptocurrencies do not need to be complicated – use Blockpit
Sources
https://www.classic.ird.govt.nz/income-tax-individual/cryptocurrency-qa.html
http://taxsummaries.pwc.com/ID/New-Zealand-Individual-Taxes-on-personal-income
https://www.ird.govt.nz/topics/income-tax/tax-codes-and-tax-rates/tax-rates-for-individuals
https://www.fma.govt.nz/news-and-resources/media-releases/fma-commentary-on-icos-and-cryptocurrencies/
https://www.rbnz.govt.nz/research-and-publications/analytical-notes/2017/an2017-07
https://thenextweb.com/hardfork/2019/08/12/new-zealand-bitcoin-salary-regulation-bad-idea/
https://www.classic.ird.govt.nz/resources/1/c/1c6029d0-611c-4a15-9cbf-b712129ab76c/tib-vol31-no7.pdf
https://www.wired.co.uk/article/new-zealand-bitcoin-salary-tax-libra-cryptocurrency
https://cointelegraph.com/news/new-zealand-rules-receiving-income-in-bitcoin-is-legal-taxable
https://cointelegraph.com/news/new-zealand-rules-for-crypto-salary-have-hopes-been-answered
