An Overview of Taxation of Crypto Assets in New Zealand

On the whole, New Zealand's cryptocurrency tax policy is relatively comprehensive, providing clear guidance and regulations for cryptocurrency holders, investors and traders.

Compile: TaxDAO

The New Zealand government has recognized the legality of cryptocurrency and regards it as a form of asset and investment. The income obtained through holding, trading and mining is legal and subject to corresponding taxes. According to the regulations of the tax bureau, taking into account the asset attributes of cryptocurrencies, the income generated during the sale and transaction process should be reported as "taxable income" and personal or corporate income tax should be paid; if it belongs to mining, NFT transactions or using encrypted assets When paying for goods and services, etc., you need to pay Goods and Services Tax (GST). Overall, New Zealand's cryptocurrency tax policy is relatively comprehensive, providing clear guidance and regulations for cryptocurrency holders, investors and traders.

How are cryptocurrencies taxed in New Zealand?

In New Zealand, you are required to pay tax on income derived from mining, staking, selling or trading cryptocurrencies. You are taxed according to income tax brackets from 10.5% to 39%. However, you can offset losses in cryptocurrencies from other sources of income.

Your cryptocurrency income may come from any of the following activities:

·Mining

· Pledge

·loan

·Sale

·trade

· Get paid for goods and services

· NFT transaction

· In some cases, airdrops and forks

If your primary purpose for acquiring cryptocurrency is to dispose of it, then you pay taxes on cryptocurrency transactions. Likewise, you can offset losses in cryptocurrency against other income only if the primary purpose of acquiring the cryptocurrency was for disposal.

Tax residency and taxes

If you are a New Zealand tax resident, you are taxed on your worldwide income. So even if you used a wallet or exchange outside of New Zealand, or traded overseas, you will be taxed on your cryptocurrency income.

If you are a new tax resident, you may be considered a transitional tax resident and will be entitled to certain benefits. You will be able to enjoy a four-year tax exemption on foreign income. This includes cryptocurrency income (whether earned before or after you became a New Zealand tax resident). However, selling cryptocurrencies on New Zealand exchanges is not exempt from these taxes.

Determine tax status

Most people will only pay taxes as individuals. If you work full time and trade cryptocurrencies in your spare time, you most likely will not be considered a taxable business. However, you will still be required to pay taxes on any profits you make.

if you

· There are a lot of transactions

· Spend a lot of time managing your cryptocurrency activities

· Regularly manage your cryptocurrency portfolio

Then you are likely to be regarded as a business engaged in cryptocurrency transactions and need to pay the corresponding corporate income tax.

You may also be taxed as a business if you mine cryptocurrency. Factors to consider are

How long have you been mining, or how long do you plan to mine

·The scale of your mining business

How much time and money did you spend mining

·Do you have a profit motive?

The longer you mine, the larger your mining operation is, and the more time and money you invest, the more likely your activity will be considered a mining operation.

The GST rate is 15%. Generally, cryptocurrency transactions and sales are not subject to GST tax. However, in some cases, you may be required to pay GST. This includes mining, trading NFTs, or providing goods and services. You must register for GST if you think your income from GST taxable transactions will exceed $60,000 within a 12-month period.

Cryptocurrency tax treatment for different transaction types in New Zealand

Different types of transactions are treated differently for tax purposes.

BUY CRYPTO / BUY CRYPTO WITH FIAT CURRENCY

There are no taxes involved when buying cryptocurrencies. However, you need to make sure you keep track of the price at which you buy cryptocurrencies for cost basis calculations. Valuations of cryptocurrencies/digital tokens are used in cost and revenue calculations and are based on value at the time of acquisition.

If you buy cryptocurrency in a foreign currency such as USD or SEK, convert it to the local currency value for the day.

Sell Crypto/Sell Crypto for Fiat

If you make a profit on the sale of cryptocurrencies, you will have to record the profit for personal income tax purposes. In the event that you suffer a loss, you may offset it against your income if you purchased cryptocurrencies for disposal purposes.

Cryptocurrency Trading

You will be taxed on cryptocurrency transactions the same way you sell your cryptocurrency for fiat currency. Any profits must be declared for personal income tax.

Initial Coin Offering

An ICO is a way for blockchain companies to sell pre-mined cryptocurrencies to potential investors. When you invest cryptocurrency (usually Ethereum) in a new project, you get tokens for that project.

The tax office has not provided clear guidance for those involved in ICOs. But from a tax standpoint, it might be the same as trading in cryptocurrencies. Essentially, you send cryptocurrency in exchange for tokens for a new project. You follow the same principle, selling your cryptocurrency for the value of the ICO token in your local currency. The cryptocurrency you send is subject to personal income tax, while the tokens you receive inherit their cost basis.

Purchase goods and services with cryptocurrencies

The purchase of goods and services using cryptocurrencies is a cryptocurrency disposal event. Therefore, you will be taxed on any gains made. If you are compensated in cryptocurrency for providing goods and services, you must also charge GST.

Transaction/transfer fees paid in cryptocurrency

On some exchanges, typically when you trade cryptocurrencies, you pay transaction fees in cryptocurrencies. In these cases, you will need to convert the cryptocurrency used to pay the transaction fee into your local currency and then pay the capital gains. This can become very tedious if you have a lot of transactions.

You can deduct the cost of crypto assets when calculating your income. This includes any transaction fees incurred.

Transfer cryptocurrencies between your own wallets

Transferring cryptocurrencies between your wallets is not a taxable event (including sending cryptocurrencies to your account on an exchange). Only the transfer fee is taxed, as stated above. You must track these transfers properly so you don't pay unnecessary taxes.

Lost or Stolen Cryptocurrency

You don't need to pay taxes on lost or stolen cryptocurrencies. In some cases, you can claim a deduction equal to the initial value of the stolen crypto assets. The deductions you can claim are the amount you paid to get them. Therefore, unlike other dispositions, the then-current fair market value is irrelevant.

You can only deduct losses if the cryptocurrency was taxable when you sold or traded it. If you manage to recover stolen income, and you have previously received a deduction for that asset, you must report the value of the recovered cryptocurrency as income. This amount is usually limited to the amount that has been declared as a loss.

Send Cryptocurrency as a Gift / Receive Cryptocurrency as a Gift

If you give a gift after October 1, 2011, you will not be subject to gift tax. However, you may still want to check to see if you meet the legal requirements for gifting.

Donate cryptocurrency

There are no specific guidelines for cryptocurrency donations. However, you can generally claim one-third of any donation over $5 to approved charities and organizations. To qualify for the deduction, you must have taxable income in the year the donation is claimed.

airdrop

Airdrops are often seen as gifts to token holders or to the blockchain. You may be taxed on receipt, disposal, or both due to airdrops.

If you passively acquire cryptocurrency through an airdrop, then generally you will not be taxed when you receive the airdrop.

Airdropped currency is taxable if you:

· Regularly receive airdrops

・The service of receiving airdrops has been executed

·Own encrypted asset business

· Acquisition of crypto assets as part of a profit plan.

Filling out KYC information to get an airdrop, etc. is not enough to be considered as providing a service that generates taxable income.

Disposal of airdropped currency is taxable if you:

Disposal of crypto assets as part of a profit plan

· Provide services for airdrops

·Own encrypted asset business

· Acquisition of encrypted assets for disposal

Serving to earn an airdrop could be like performing an action, such as liking or sharing a tweet. If you have done something like this, you already have a purpose to get the airdropped cryptocurrency. If the purpose of this is to dispose of the airdrop and make a profit, the disposition is taxable.

If you are taxed both when you receive and when you dispose of your airdropped cryptocurrency, you can deduct the value declared at receipt from the value of your disposal when calculating your income. That way, you're not taxed on the same amount twice.

HARD FORK

A hard fork occurs when the blockchain splits. If you held the original cryptocurrency, you may receive a new currency. For hard forks, you may be taxed upon receipt, disposal, or both. Generally speaking, if you acquire cryptocurrency passively through forking, it will not be taxed. Receiving a fork will only be taxed if you:

·Own encrypted asset business

· Acquisition of crypto assets as part of a profit plan.

If the cryptocurrency you obtained from the fork is for disposal, the disposal will be taxed in the following cases:

·Own encrypted asset business

Disposal of crypto assets as part of a profit plan

・Acquisition of encrypted assets for the purpose of disposal

· Raw crypto assets were acquired for the purpose of disposal.

The acquired cryptocurrency inherits the purpose for which you acquired the original cryptocurrency asset. If your primary purpose of acquiring the original crypto asset is for disposal, you will also acquire the forked currency for disposal. If the forked cryptocurrency is acquired for disposal, it will be taxed on any transaction using it.

Mining and Staking

In general, any block rewards or transaction fees you earn from cryptocurrency mining or staking will be taxable. If you mine cryptocurrency, you will have to pay taxes if you:

· Earn ordinary income by providing mining services.

· Mining encrypted assets for disposal

· Engage in encrypted asset mining business

·Participate in profit plan

In most cases, you will be taxed upon receiving and disposing of your mined/staked cryptocurrencies. If you sell your cryptocurrency and claim it was not acquired for disposal, you need to be able to prove this.

You can deduct the depreciation expense of any computer hardware or software used for mining.

If you are in the cryptocurrency mining business, you may be subject to GST when you earn cryptocurrency from mining.

In most cases your mining rewards will be zero for GST purposes. This is the case if the blockchain you are mining is "located" outside of New Zealand. Therefore, you do not need to pay GST on the cryptocurrencies you receive. However, once you sell, you will have to pay income tax on any appreciation in value that has occurred since the cryptocurrency was mined.

Lending cryptocurrencies and lending interest

Any cryptocurrency earned from the loan will also be part of your cryptoasset income. You must report the fair market value of any cryptocurrency interest at the time you received it.

Income and Rewards

While there are no specific guidelines regarding cryptocurrency income, generally, you will have to pay income tax if you perform any work or effort in acquiring cryptocurrency.

Margin Trading and Futures

Margin trading involves borrowing money to hold a leveraged position in cryptocurrencies. The IRD does not explicitly mention margin trading in its cryptocurrency guidelines.

In general, the result of a trade is provided as a realized profit or loss after calculating margin charges. In these cases, realized profits or losses are taxable.

Tax treatment of NFT

NFTS (Non-Fungible Tokens) can be a hobby, a profit scheme or a business. If you trade NFTs for the sake of viewing artwork, you don't have to pay disposition tax.

However, if your primary purpose of buying or selling NFTs is to hold or dispose of them as investments, then you must pay taxes on your NFT income. When determining your primary purpose for using NFTs, keep in mind the frequency of your transactions and your expected timing.

Unlike cryptocurrency transactions, NFTs are subject to GST. So if you make more than $60,000 from NFTs, you have to pay GST. If you sell NFTS to New Zealand residents then you must pay GST. If sold outside New Zealand, the transaction will be zero rated for GST.

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