Tax talk for Crypto-investors
Living in New Zealand, or any other developed country, you would need to be under an impressively sized...
Cryptocurrencies (aka cryptoassets) are cryptographically secured digital representations of value that can be transferred, stored, or traded electronically with the use of blockchain technology. They are effectively an encrypted data string that denotes a unit of currency, where ownership records are stored in a distributed ledger. Cryptocurrency has now been around for nearly 13 years with the inception of Bitcoin in January 2009 and has since increased in popularity.
There are many reasons that people invest in cryptocurrency, with one of the main attractions for investors being its’ decentralised nature. This means that control and decision-making does not belong to a centralised authority such as a bank or government, and is instead transferred to the users on a distributed network. Others are attracted by the ability to use crypto to hedge against inflation, as some tokens have supply caps which prevents a centralised authority from generating more of it at their discretion.
As accountants and business advisers, our biggest concern for clients who hold cryptocurrency is that they need to be aware of the associated tax impacts , the importance of record keeping from the beginning of purchase and making sure that clients are aware of any changes in legislation.
We can assist with the preparation of tax calculations and tax returns for all cryptocurrency holders whether they be long term investors, regular traders, or holding in separate entities such as Companies or Trusts. Our services extend to ensure all compliance requirements are met and we provide regular tax support such as provisional tax management and managing tax deadlines.
Assistance with Tax software and record keeping
Record keeping is an important component of investing in cryptocurrency, not only because the IRD mandates a seven year period of record keeping but also to ensure that investors continue to stay on top of transaction activity and wallet balances. For the purpose of preparing a tax return, it is vital that investors keep track of all their trading activity and continuously monitor the tax implications of their activity. We can support investors by assisting in record keeping through tax software such as Koinly and Taxoshi. Our services include guidance with reconciliations, periodic reviews, troubleshooting with complex transactions, and interactive trainings for those seeking to take control of their record keeping.
Tax treatments of PAYE, paying employees with crypto, holding crypto
Cryptocurrency is increasingly becoming a medium of exchange in everyday business functions such as Payroll and Point-of-Sale. Businesses and their stakeholders need to be aware of how their activity is subject to indirect taxes such as PAYE and GST. We can assist by providing tax advice to those who have already or are seeking to incorporate cryptocurrency into their businesses.
Tax and cashflow planning
Trading and transacting with cryptocurrency give rise to a plethora of considerations around tax and cashflow planning. For those looking to make significant transactions, we can assist by reviewing tax implications of proposed transactions and provide forward looking analyses to illustrate the impacts on potential tax payments and cashflows. We can also assist taxpayers to manage their future tax liabilities by establishing tax pooling solutions and advising on upcoming tax payments.
Financial statement preparation and accounting treatments
Entities which hold and trade crypto are still subject to financial reporting requirements determined by the nature and size of their business. For example, those who are large or publicly accountable may be required to prepare IFRS compliant reports, requiring a greater focus on the accounting standards applicable to cryptocurrencies. We can assist in the preparation of any required reports and review specific accounting treatments under relevant reporting standards. We can also support entities seeking advice on complex cryptocurrency transactions and arrangements.
“Cashing out in Crypto is something that I and many others dream about yet dread at the same time.. the reason being the tax implications. I, like many others, had invested for years without even thinking about how the gains were going to be taxed. Earlier this year my portfolio reached the value I always intended to take profits at so I was forced to address my legal obligations.
I contacted a number of New Zealand accountant firms but the majority refused to touch my request mainly due to not knowing enough about this new evolving space. A trusted friend of mine recommended Matthew as he had worked with him prior and knew that he had an interest and knowledge around Cryptocurrency.
Matthew was excellent, first of all by having a personal interest in Cryptocurrency he knew exactly what I was talking about (which alone saved a lot of headache). He very clearly explained the current New Zealand Cryptocurrency tax laws and gave me a number of options around how I could go about cashing out. The process was very smooth, communication was great and service was prompt. Really couldn't have asked for more and the whole process was not nearly as strenuous as I had anticipated and dreaded for many years.
I will personally continue to work with Matthew going forward and would highly recommend him to anyone else in my situation."
"In a time of great regulatory uncertainty and evolving regulation across the world and in NZ, Matt and his team have been able to provide sound advice and options for crypto tax management tools, decision making across our crypto investment portfolio, and tax certainty around our trading and investment portfolios."