Mining cryptoassets is a process that creates new blocks and achieves consensus (agreement) on the blocks to add to the blockchain. Different consensus models are possible, for example proof of work and proof of stake.
Miners can receive cryptoasset rewards in return for verifying additions to the blockchain digital ledger. The verifying process is a service that miners provide to the blockchain digital ledger.
A proof of work miner may choose to mine cryptoassets alone, or as part of a mining pool.
Some people choose to take part in proof of stake mining through a third party staking-as-a-service provider or a staking pool rather than staking on their own.
Mining cryptoassets and tax
In most cases, cryptoassets you get from mining (such as transaction fees and block rewards) are taxable. The mining service you provide will be subject to GST.
However, as the service is provided to a blockchain digital ledger outside of New Zealand it will be zero rated.
The GST input on the costs that relate to your mining service can be claimed for GST purposes.
You may also need to pay income tax on any profit you make if you later sell or exchange your mined cryptoassets. There are no GST implications for this subsequent sale of cryptoassets.
When you mine cryptoassets, you may have to pay tax because you:
- are in the business of mining cryptoassets
- carry on a profit-making scheme
- earn ordinary income from providing mining services
- mine cryptoassets for the purpose of disposal (to sell or exchange).
It’s important to consider which of the situations below applies to your mining activity.