With more Kiwis putting money into crypto assets than ever before – and some making big returns – it’s time to talk tax. After all, among the implications for your wins is interest from IRD.
While most crypto investments are of the ‘currency’ type, the IRD’s net includes any crypto assets, including the increasingly popular Non-Fungible Tokens – and probably most interesting of all is that IRD doesn’t see crypto as money, but as property. This distinction is important, as you’ll soon discover.
Firstly, let’s consider crypto as an asset class and New Zealanders’ interest in it. Since the discussion is around crypto and tax time, the IRD’s definition is appropriate: ‘Crypto assets are cryptographically secured digital representations of value that can be transferred, stored, or traded electronically. They use some form of distributed ledger technology such as blockchain’ says the taxman.
Online publication Finder maintains the Finder Cryptocurrency Adoption Index, proving insights into crypto trends in 27 countries, New Zealand among them. Finder’s research shows that a significant percentage of us do in fact invest in crypto, with 8.7 per cent holding assets of one kind or another. That’s ahead of countries like Germany (7.7 per cent) and the United Kingdom (6.1 per cent). The first cryptocurrency, bitcoin, is most popular, with 50.8 per cent of crypto owners investing in the currency. Interestingly, crypto is a bit male-dominated, with men accounting for 70 per cent of holders.
Internationally, some form of crypto is owned by more than 15 per cent of people – and has a market cap approaching US$2 trillion, according to CoinMarketCap.
With the beginning of the financial year, now’s the time to get up to speed on what your crypto gains (hopefully) or losses mean IRD’s eyes. As mentioned, the taxman sees crypto as property and therefore tends to tax it as such – but how?
At a high level, with crypto treated as property, tax generally applies when it is disposed of – that is, spent, traded for goods or services, selling it for cash, or exchanging it for another crypto. This last one is probably the most important and the most likely to catch investors out: flicking a few Bitcoins into Dogecoins could incur a debt to the IRD. Note, too, that like the stock market, you’ll only become liable to pay income tax when you realise a profit. If you bought Bitcoin and it went up 10%, but you haven’t cashed it out or spent it, paying tax on that gain isn’t required as it is a ‘paper gain’ and not yet ‘banked’. Exchange the gains for Dogecoin, though, and the taxman will want to know about it!
When it comes to losses, these can be offset against other income you’ve earned during the year, including from your wages or salary.
The rules do vary depending on your residency status, and – as can be expected with an emerging asset class – there are some uncertainties with definitions, particularly residents and non-residents. However, since most reading this article are likely to be Residents for Tax Purposes, the rules are clear: you are taxed on your worldwide income, including crypto assets.
Our approach is always the same – you are a name, a story, a background, and you also deserve a future – free of the worries of tax debt or legal action. Be proactive today, to save your company for tomorrow.
If you think you might need further assistance, Contact Us to receive professional and qualified advice on tax, IRD arrears and other matters, today.