Thanks to Satoshi Nakamoto, the year 2009 ushered in a new era in blockchain technology and decentralized currency. The first attempt to put a dollar value to a Bitcoin was made in 2010 when the holder exchanged10,000 bitcoins for two pizzas. Little did they know that if they had held on to the crypto, they would be a millionaire today.
Since the early years, bitcoin or any other cryptocurrency has gained so much traction that there are over 106 million using crypto exchanges as of 2021, with NZ’s penetration rate at 4.49%. If you are considering investing in crypto or already have, you need to know more about crypto tax NZ. Read on to learn more.
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Intention
The new ruling states that if mining is done as a hobby, it will not be taxed, but if it is transactional, it will be taxed according to the nature of the transaction. The Inland Revenue Department taxes crypto based on the intention at the transaction time. The IRD has not clarified how it will classify the intent, but you can expect these regulations to be updated regularly.
Nature Of Transaction
Crypto can be used as an asset or as a currency. Therefore the way it is taxed is based on the nature of your transaction. If you purchase a crypto asset solely to sell it for gain, it is treated as capital gains. Since NZ does not have any capital gains tax, the transaction will be considered a property sale and taxed accordingly. If you use crypto to make and receive payment and then liquidate the crypto, the value generated will be treated as business income and taxed based on those rules.
Mining And Staking
Mining and staking are taxable if they are done for business, for making a profit, and for generating income. On the other hand, if the activities are done as a hobby, it is not taxed at present. Due to the versatile nature of the currency, you can expect the tax rules to change frequently to keep up with the latest developments.
Crypto As Salary
The IRD issued several guidelines regarding using crypto assets as payments to employees. If salaries and wages are paid using crypto, it is treated as per the PAYE rules. For fringe benefits provided through crypto, the currency is taxable at the time of payment as per the market value. When issuing crypto as ESOPs, they are taxable as per Employees Shares Scheme rules.
Other Things To Know
You have to report all crypto assets. Many people got into crypto trading and investments over the past 12 to 24 months and now have to pay tax on it for the first time. Check with a professional to ensure that you don’t miss your tax liability. The IRD has contemplated taxing it based on GST rules but decided against it due to its diverse uses.
According to the IRD, there are no special tax laws for crypto assets. It is taxed based on use since they are used for heterogeneous purposes. The onus lies on you to make sure that you pay the crypto tax in NZ to avoid getting under the Revenue department’s radar.
