Cryptoasset Tax: What You Need to Know
Cryptoassets, also known as cryptocurrencies or virtual currencies, are becoming increasingly significant in today's digital economy. What you make from selling, trading or exchanging cryptoassets is taxable.
What are Cryptoassets?
Cryptoassets are cryptographically secured digital representations of value that can be transferred, stored, or traded electronically. They use distributed ledger technology like blockchain to ensure secure and transparent transactions.
Are cryptoassets taxable?
In New Zealand, cryptoassets are treated as property for tax purposes. This classification affects how they are taxed, regardless of what they are called or how they are used. The main points to consider include:
GST Implications:
Cryptoassets are not subject to Goods and Services Tax (GST) when bought or sold.
However, if cryptoassets are received as payment for normal business activities, they do have GST implications.
Financial Arrangements:
Cryptoassets are not considered financial arrangements, distinguishing them from traditional financial instruments for tax purposes.
Taxable Income:
Any income generated from selling, trading, or exchanging cryptoassets is taxable. This means that individuals and businesses must declare such income in their tax returns.
Inland Revenue's Focus on Compliance
IRD is actively monitoring and enforcing compliance among individuals and businesses dealing in cryptoassets. In 2020, IRD updated its guidance on the tax treatment of cryptoassets. Since then, they have been increasingly alert in ensuring that all taxable activities related to cryptoassets are properly reported.
Recent Developments
Trevor Jeffries, an IRD spokesperson, highlighted recent efforts to improve compliance. They have been sending letters to high-risk customers, urging them to rectify any non-compliance issues before facing audits. These efforts have been strengthened by advanced data analytics capabilities and collaborations with other tax jurisdictions.
Data Analytics:
IRD uses data from cryptoasset exchanges, both domestically and internationally, to identify customers who are not paying their taxes. This data has revealed that there are 227,000 unique cryptoasset users in New Zealand, with around 7 million transactions valued at $7.8 billion.
Compliance and Guidance:
IRD is enhancing its compliance activities and has made it clear that blockchain transactions are not anonymous. The department provides extensive guidance to help customers assess their tax obligations and encourages seeking advice from independent tax advisors if necessary.
Key Takeaways:
Review and Report: If you are involved in cryptoasset transactions, review your activities and ensure all related income is declared in your tax returns.
Stay Informed: Keep up-to-date with the latest guidance from IRD and seek professional advice to navigate the complexities of cryptoasset tax.
Compliance is Critical: Non-compliance can lead to audits and potential penalties. Being proactive in understanding and meeting your tax obligations is essential.
The landscape of cryptoassets is rapidly evolving and so is the regulatory framework surrounding it. By staying informed and compliant, individuals and businesses can effectively manage their tax obligations and avoid the risks associated with non-compliance.
For more detailed information and advice, contact us or refer to the guidance provided by the Inland Revenue.