There’s been a lot of uncertainty around how cryptocurrencies should be treated for tax purposes – cryptocurrencies and blockchain technology were not even conceived when our current tax legislation was written, and they don’t neatly fit any of the categories. This uncertainty has improved recently when IRD published guidance to explain how New Zealand’s existing tax laws should be applied to bitcoin and other cyrptocurrencies.
The key message is that cryptocurrency should be treated like property for tax purposes. The impacts of this are that:
- GST applies on cryptocurrency transactions
- Income tax will normally apply to any sale of cryptocurrency – whether sold for NZD/USD or traded for another cryptocurrency
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.
Q: Do I need to pay GST on cryptocurrency I purchase?
A: It depends. 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. If you are turning over more than $60,000 per year (that’s the value of the cryptocurrency, not your profit) then you should be registered for GST. You must pay GST when you sell to NZers (e.g. through kiwicoin, Dasset, or localbitcoins). You can offset that by claiming GST on cryptocurrencies you purchase from GST registered businesses…. but at this stage there are none in NZ! So be careful not to sell to NZers if you don’t want to incur GST liabilities.
When you buy through Easy Crypto we act as your agent. We buy from offshore suppliers on your behalf, and for tax purposes it is as if you were buying from them directly.
Income tax on cryptocurrency
Just like any other activity that you do to make 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.
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 Boyle, he knows a thing or two about cryptos and tax.