If your cryptoasset mining activity is a business, you need to pay income tax on your profits. This includes paying tax on:
- mining rewards when you receive them
- profits from selling your mining rewards.
Working out if your cryptoasset mining is a business
In general, you’re in business if you’re mining cryptoassets regularly to make a profit.
These are factors we look at to decide if your cryptoasset mining is a business.
- How long you have been mining or are intending to mine.
- The size of your operation and number of transactions.
- How much time, money and effort you put into mining.
- The pattern of your mining activity (for example, is it regular).
- How much you make from mining.
- If you intend to make a profit.
- The nature of your mining activity.
Cryptoasset mining is generally an activity aimed at making a profit, not a hobby. The longer you mine, the larger the size of your operation, and the more time, money and effort you put in, the more likely it is that you are in business. Your financial results are also relevant.
If your cryptoasset mining activity is a business, your cryptoassets are likely to be trading stock. GST also needs to be considered.
Lucas set out to make some money from mining crypto E at the end of 2015. He bought all the hardware and software. He built a mining rig with 8 GPUs and started mining from home.
Later he joined a mining pool so he could earn mining rewards on a more regular basis.
Lucas regularly monitored and maintained his mining operation to keep it running well. He sold some crypto E now and again, whenever he thought the price was good. Although his electricity bill was high, he made a good profit. He stopped mining and sold the rest of his crypto E at the end of 2017.
Lucas was in the business of mining cryptoassets.
He was providing the service of securing and maintaining crypto E’s blockchain. He received crypto E for providing this service.
While a mining rig with 8 GPUs is not a big operation, Lucas ran it continuously for 2 years. In that time he spent a lot of time, money and effort setting up and maintaining his mining operation.
Lucas’ intention was to make a profit and his actions support his intention. Joining a mining pool does not change the conclusion that Lucas was in the business of mining.
Lucas would need to pay income tax on:
- the rewards and transaction fees he earned
- the profits he made from the sale of the cryptoassets he earned.
Lucas also has a GST taxable activity. However, as the services are provided to a blockchain outside New Zealand the services would be zero rated for GST. Input credits on the costs relating to the mining activity (on things like power and the purchase of computer equipment) can be claimed.