New Zealand Crypto Tax Guide 2024
Author: Jodi Collinge, Crypto Asset Tax Specialist at JC Tax
Content
- The New Zealand Tax System
- Tax Treatment of Crypto Assets
- Cost Basis
- Crypto Incentives
- Crypto Asset Businesses
- Losses
- Loss or theft of crypto assets
- Staking Rewards
- Airdrops
- GST
Overview
New Zealand differs to most other tax jurisdictions in that it doesn’t have a capital gains tax. Therefore, any gains/losses arising from crypto asset transactions are taxable under the income tax legislation.
The Inland Revenue Department (IRD) classifies crypto assets as property for tax purposes. It is not money or legal tender. This classification was upheld in the case of Ruscoe v Cryptopia Ltd (in liquidation) [2020] NZHC 728 which is one of only a few crypto cases globally.
IRD have recently defined crypto assets in the tax legislation as:
a digital representation of value that exists in—
- a database that is secured cryptographically and contains ledgers, recording transactions and contracts involving digital representations of value, that are maintained in decentralised form and shared across different locations and persons; or
- another application of the same technology performing an equivalent function. The definition explicitly excludes non-fungible tokens.
The New Zealand Tax System
New Zealand operates on a system of self-assessment and the income tax year runs from 1 April to 31 March with tax returns being due by 7 July following the tax year for taxpayers that do not have a tax agent. The filing date is extended to 31 March following the tax year for taxpayers with a tax agent.
New Zealand tax residents are subject to tax on their worldwide income whereas non-residents are only subject to tax on New Zealand sourced income.
An individual will be a New Zealand tax resident if they meet either of the following criteria:
- Day Count Test: The individual is personally present in New Zealand for more than 183 days in total in a 12-month period. The person will then be treated as a resident from the first of those 183 days.
- Permanent Place of Abode Test: The individual has a permanent place of abode in New Zealand, even if they also have a permanent place of abode elsewhere.
Additionally, an individual who is a resident by virtue only of the 183-day rule will stop being a New Zealand resident if they are personally absent from New Zealand for more than 325 days in total in a 12-month period. The person will then be treated as not resident from the first of those 325 days. However, the permanent place of abode test is the overriding residence rule, meaning that a person who continues to have a permanent place of abode in New Zealand will remain a resident even if they are absent for more than 325 days.
A company will be tax resident in New Zealand if it meets any of the following criteria:
- It is incorporated in New Zealand.
- Its head office is in New Zealand.
- Its centre of management is in New Zealand.
- Its directors, in their capacity as directors, exercise control of the company in New Zealand, even if the directors’ decision-making also occurs outside New Zealand.
Tax Treatment of Crypto Assets
Taxable events include disposing crypto assets for fiat currency, exchanging one crypto asset for another crypto asset, using crypto assets to buy goods or services and gifting crypto assets.
Cost Basis
The IRD permits a taxpayer to use 3 methods of cost allocation when calculating their taxable income:
- Where the crypto asset disposed of can be specifically identified and traced then the actual cost can be method.
- First In, First Out (FIFO)
- Weighted average cost (WAC)
The IRD specifically excludes Last In, First Out (LIFO) as a cost basis method. Whilst taxpayers can initially choose a cost basis method it is expected that the chosen basis will be applied in a consistent manner.
Crypto Incentives
New Zealand does not have any specific incentives relating to crypto assets although it is possible to take advantage of some general rules. One such rule relates to transitional residency.
A transitional resident is a special category of New Zealand tax resident, which includes new migrants to New Zealand or former New Zealand tax residents returning after an extended period overseas.
To qualify as a transitional resident, a person must:
- Be a New Zealand tax resident.
- Not have been a New Zealand tax resident in the preceding 10 years before becoming a New Zealand tax resident.
- Not have been a transitional resident before.
Transitional residents are exempt from tax on most foreign-sourced income (other than income from employment and services) for a period that generally lasts four years but can extend slightly longer in some cases, depending on how they became a New Zealand tax resident.
As New Zealand taxes income on a source basis this means that a transitional resident who disposes of crypto assets offshore (that are not part of their business) will not be subject to tax in New Zealand. This can create tax planning opportunities for reducing income tax liabilities during the transitional period. It should be noted that once the transitional residence period ends there is no revaluation to market value.
The crypto assets retain their original cost under the chosen method adopted. In addition, transitional residence is only available to individuals.
Income Tax Rates for Individuals As there are no specific tax rules relating to crypto assets, normal income tax rates apply. There is no tax-free allowance in New Zealand. However, the tax bands will be increased from 31 July 2024 which is the first time in more than 10 years.
| Until 31 July 2024 | From 31 July 2024 | ||
| Income Level | Tax Rate | Taxable Income | Tax Rate |
| $ 0 – $ 14,000 | 10.5% | $ 0 – $ 15,600 | 10.5% |
| $ 14,001 – $ 48,000 | 17.5% | $ 15,601 – $ 53,500 | 17.5% |
| $ 48,001 – $ 70,000 | 30.0% | $ 53,501 – $ 78,000 | 30.0% |
| $ 70,001 – $ 180,000 | 33.0% | $ 78,001 – $ 180,000 | 33.0% |
| $ 180,001 + | 39.0% | $ 180,001 + | 39.0% |
Crypto Asset Businesses
If you are considered a crypto asset trader, provide a mining service or operate a crypto asset exchange, the same principles apply. Any income arising from crypto asset transactions are taxable. The main difference between a business and an investor is that as a business, crypto assets will generally be treated as trading stock and will be subject to trading stock rules. If the business is incorporated as a limited company the income tax rate is a flat rate of 28%.
Losses
As crypto asset transactions are subject to ordinary income tax rules if a loss arises this can be offset against other taxable income (for example employment income or interest income) arising in the tax year. The loss is not ringfenced. If the loss cannot be fully utilized in the current income year, it can be carried forward and utilized in future years. The loss cannot be carried back.
Loss or theft of crypto assets
A deduction is available if crypto assets are lost or stolen. The onus of proof is on the taxpayer to substantiate the claim – they must be able to demonstrate that they owned the assets, the cost of them and that they no longer have access to them. The loss available is the original cost of the assets not the market value at the time of the loss.
Staking Rewards
There are 2 taxable events for this type of reward. The market value of the rewards is taxable at the time of receipt and any gain/loss on the disposal of the staking rewards is also a taxable event.
For example: $50 worth of rewards are received on 30 June. This creates $50 of taxable income. The reward tokens are disposed of on 31 December for $70. This creates
further taxable income of $20 (the $50 market value is used as the cost
basis of the reward tokens).
Airdrops
Airdrops are taxable but may have one taxable event or two. If you have actively completed transactions/actions to become eligible for an airdrop, the crypto assets will be taxable at market value at the time of receipt and then again on disposal (a similar situation to the staking rewards described above).
If the airdrop was unsolicited (you were not expecting to receive them) then it will not be taxable at the time of receipt, but the proceeds will be fully taxable on disposal of the airdropped tokens.
GST
The GST rate in New Zealand is 15% and the threshold for compulsory registration is $60,000 (calculated on a rolling 12-month basis). IRD have specifically excluded crypto assets from its GST legislation. This means that buying and selling crypto assets is not subject to GST and
registration is not required. The reason for this is to ensure that the rules do not impose barriers to developing new products, raising capital or investing through crypto assets.
However, if you receive crypto assets as payment for goods and services, GST is still charged in the normal way. When you later dispose of those crypto assets you do not need to account for GST on the sale. If you are providing a mining service, this is deemed to be a supply for
GST purposes so you must register and charge GST if the threshold is exceeded.
However, it is likely that the service will be to an offshore platform so the GST will be zero-rated.
If you create and sell NFT’s, and the purchaser is in New Zealand, the sales will be subject to GST as NFT’s are specifically excluded from the definition of crypto assets. In practice, due to the nature of blockchain technology, it may not be possible to identify where the purchaser is located which creates issues around whether the sale should be standard-rated or zero-rated.
The tax treatment of crypto assets in the New Zealand continues to evolve as the market matures, reach out to Jctax at [email protected] to find out more!
Contact: [email protected]
Check out the full Global Crypto Tax Report 2024