Crypto (the rise and fall) .. and tax

Investing in the different forms of crypto assets has had a surge since last years lockdown and this hasn’t gone unnoticed by the IRD.

It, along with the tax authorities around the world, are scrambling to keep the tax law up to date with this sort of technology so much so that in the latest bill they propose to have “cryptoassets” excluded from the GST and financial arrangements rules to ensure “these rules do not impose barriers to developing new products, raising capital, and investing through cryptoassets”.

This is an extremely complicated area and the IRD have not come out with a playbook on tax (we know they are working hard on it) but they have stated the principles that apply to investing in “cryptoassets”.

A summary of those are:

  • Generally profit from investing in cryptoassets will be taxable unless you can prove that the intention of investing was for some other purpose other than making a profit .. example is that bitcoin can be used as a method of proving the authenticity of a transaction
  • The purchase of a cryptoasset does not in itself create income
  • It is what is done with that cryptoasset that could trigger taxable income .. example you use some of it to buy something, you swap some to purchase another type of cryptoasset or you just sell it. All of those transactions could create taxable income or a loss
  • Where you trade is irrelevant as being a tax resident in NZ, you are taxed on your worldwide income

For those of you dabbling in this area, you will know how easy it is to see/buy/swap/transfer with a few clicks .. but as above that all has consequences and those transactions need to be traced and profits or losses to be calculated on a per trade basis. Factor in the foreign currency movement and suddenly that play thing has taken a life of its own!

We understand that some trading platforms will produce reports which do the calculations but would have to say that is not the norm.

So if you have cryptoassets then we probably need to talk about trying to get track of the transactions.