Your handy summer guide to crypto tax

Following on from our 09 November article about cryptocurrency, specialist Matt Shallcrass takes a deeper dive into the intricacies of how crypto assets are taxed in New Zealand...

Time to read: 5 mins

Let’s look at some basics…

An interesting thing about crypto is that it’s treated as property, rather than currency, for income tax purposes. It falls into the tax net upon purchase but is not taxed until disposed of for cash or exchanged for another crypto asset, says Matt.

The way you’re taxed depends on whether you’re a speculator, trader or long-term holder. Currently all gains (and losses) of speculators and traders are subject to taxation, however as crypto is still a fairly young asset class there are differing views as to whether a long-term holder could have their gains treated as a non-taxable capital gain. Matt says it is important to keep a record of what your intentions are when investing in crypto in case you need to provide this to Inland Revenue. He also suggests keeping crypto for trading versus long-term investment in separate “wallets” in case of any future changes to its tax treatment.

A trap for new players 

What often happens is that clients start out quietly, doing a few trades that are easy to account for. Then they become more confident, perhaps using bots or other mechanisms to smoothly facilitate trades, and everything gets out of hand. Matt and his fellow Baker Tilly Staples Rodway crypto assets specialists work with clients to help calculate their gains and losses, then put a mechanism in place to better capture your purchases and trades going forward.  

How is crypto treated for income tax?

It is considered self-employment income where realised gains from sale are returned as income and any expenses related to your trading activities, or realised losses from sale, are claimed as deductions.

What about privacy coins?

It’s easy to assume that if Inland Revenue can’t see the balance, they won’t know when privacy coins have been disposed of, but Inland Revenue has far-reaching powers for observing taxpayer activity, for example, receiving supermarket loyalty card printouts that may suggest a taxpayer is spending more than their declared income, says Matt.

Inland Revenue has circulated a lot of money out into the economy in recent years. It will need to balance the books and crypto is potentially an easy target, he says. “If you’ve got any skeletons in the closet, now is a good time to get that sorted because you want to be proactive rather than reactive.”

Will my offshore crypto trades come under the New Zealand tax system?

If you live in New Zealand, you’re generally a tax resident and required to report your worldwide income here, regardless of Exchange locations. However, there can be limited opportunities for new and returning migrants to reduce their crypto income under the four-year concessionary rule for transitional residents.

Matt says Inland Revenue doesn’t typically contact international exchanges for data-gathering purposes, however details may be reported through banks and other information sharing agreements, so it pays to be compliant.

How is tax applied when gifting crypto to relatives?

Matt says recipients are required to return the entire value of the sales proceeds when they dispose of free crypto gifts.

Does GST apply to crypto assets?

Legislation has recently been introduced to exclude “crypto assets” as goods or services for GST. While buying and selling crypto is not subject to GST, it does apply to the sale of Non-fungible tokens (NFT), which are usually in the form of artwork.

If you’re an artist selling NFTs, you’ll need to be GST-registered if you have or expect to have more than $60,000 per year of sales. NFTs sold overseas aren’t subject to GST, but there are innovative ways (such as the use of Google Analytics) to determine if sales are to international buyers due to the inherently anonymous nature of crypto.

“With being GST-registered, you can claim any GST for domestic costs. You can have a net GST gain because you’re essentially an exporter, so that can be quite favourable,” says Matt.

A conversation now can prevent problems later

If you’ve put off declaring your crypto gains, the best thing you can do is talk to our crypto specialists. 

“Inland Revenue will generally always come at you with the view of getting it right,” says Matt. “You may get a letter saying, ‘We believe you’ve got unreturned crypto income’ … (but) you can bet your bottom dollar that they know and are giving you an opportunity to get it right. If you ignore it, they may penalise you for tax avoidance, or lack of reasonable care… plus interest. Ten thousand dollars could become $30,000 pretty quick and that’s even before they look at criminal penalties.”

He recommends a voluntary disclosure, coming clean that you erred in not providing timely information, but now have the correct details with help from your accountants.

“A lot of the time they’ll take the penalties off the table and might just charge Use Of Money Interest. You’ll pay the core tax. We can also minimise the interest by using Tax Pooling, where we can buy the tax at the original due date so it appears as if it were paid on time, and then your interest rate is only about 5% compared to Inland Revenue’s 9%.

“Voluntary disclosure is probably the most common thing we do in crypto. We work it out and once it’s all sorted, the tax is nice and clear and our clients can sleep soundly at night. Often the tax isn’t as bad as they think it’s going to be because they would have had a couple of good years and a couple of bad years. It’s very rewarding getting that monkey off someone’s back.”

  • Our crypto specialists tailor their services to your needs, providing options and clever solutions to get the best outcome for you and your circumstances. Scroll down for their details.

DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.

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