Cryptocurrency and Tax Guide for New Zealand
We’ve put together the latest updates on tax and cryptocurrencies to make things easy for you at tax time.
Cryptocurrencies and blockchain technology were not conceived when our current tax legislation was written, and they don’t neatly fit any of the categories. The IRD has now published guidance to explain how New Zealand’s existing tax laws should be applied to bitcoin and other cryptocurrencies.
The key message is that cryptocurrency should be treated as property for tax purposes. The impacts of this are that:
- Income tax will normally apply to any sale of cryptocurrency – whether sold for NZD/USD or traded for another cryptocurrency
- GST applies on cryptocurrency transactions – BUT – the IRD is proposing to remove this, which is a very good thing!
Income tax on cryptocurrency
Just like any other activity that you do to make a profit (running a business, trading stocks, setting up a lemonade stand) you need to pay income tax on the profits you make. Or, if you make a loss, this can be offset against tax you have paid in other areas (say the PAYE you pay on your salary).
Q. What if I haven’t sold my bitcoin?
A. If you haven’t sold your cryptocurrency, then no tax applies. However if you’ve moved your cryptocurrency from one coin to another, eg BTC to ETH, then that move is taxable. You will need to work out what the NZD value of the BTC was when you bought it, and then work out what the NZD value of the ETH was when you made the trade. The difference between those two NZD amounts is taxable.
Q. What if I made a loss on my trades?
A. That’s unfortunate! But on the bright side, it means you can offset that loss against income you made from other sources. You do this at the end of the tax year, when you file your tax return.
Q. How do I actually do my taxes on cryptocurrency?
A. After the end of the tax year (31 March) you need to file an IR 3. In this you include all of the income you have made in the year from all sources (including wages, dividends, cryptocurrencies etc) and all of the tax you paid. The form then helps you calculate if you have paid too much tax, or not enough.
GST on Cryptocurrency
Under the GST Act, there are only three categories of things that can be bought or sold – goods, services, and money. While there is no GST applicable on the sale of money (kinda obvious!) cryptocurrency is not the legal tender of any country and therefore cannot be classed as money. Cryptocurrencies also don’t meet any of the current classifications of GST exempt goods or services, so by default GST is payable on bitcoin and other cryptocurrency.
HOWEVER – the IRD recently put out a proposal to remove GST on cryptocurrencies like bitcoin. Even better, the proposal suggests that this change be back dated this until 1 January 2009. Which would mean that no GST would apply to past transactions.
Q: Do I need to pay GST on cryptocurrency I purchase?
A: Firstly, check out the comment above re proposed back-dating of GST changes for ‘cryptoassets’.
If you want to act under the current law (and not wait for a back dated change – see above) then usually, the onus is on the seller to collect and pay GST on the transaction. But if you are buying from someone overseas then you are responsible for declaring GST on the value of imported goods. Given the non-physical nature of cryptocurrencies though, it is potentially unclear as to whether this provision would apply. For someone who is trading cryptocurrency it’s a little more complicated.
When you buy through Easy Crypto we act as your agent. We buy from suppliers on your behalf, and for tax purposes it is as if you were buying from them directly.
Need more help?
You may wish to talk to an accountant to help you sort out the tax you owe, or are owed on your cryptocurrency activities. We can recommend Tim Doyle, he knows a thing or two about cryptos and tax.
If you have any comments or suggestions, jump on our forum thread and join the conversation.