Cryptocurrency is treated as property for tax purposes. There are no special tax rules for cryptocurrencies - ordinary tax rules apply.
Because cryptocurrency is treated as property and not currency for tax purposes, foreign currency gains or loss provisions do not apply.
How to treat payments to employees
Guidance for cryptocurrency provided to employees is available as a public ruling.
Are gains from selling cryptocurrency taxable?
It depends on why you acquired the cryptocurrency.
Cryptocurrency is considered property for income tax purposes. Where you acquire cryptocurrency for the purpose of disposal (selling or exchanging it) the proceeds you make from the selling it will be taxable.
Disposal includes swapping one type of cryptocurrency for another or exchanging cryptocurrency for New Zealand dollars or another fiat currency such as US dollar or Euros.
Bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them.
For income tax purposes, cryptocurrencies have similar characteristics to gold bullion. We published a paper setting out when proceeds from the sale of gold bullion count as income, which may help.
If you are accepting cryptocurrency as payment
Cryptocurrency received as payment for goods or services is business income, which is taxable. This is seen as a barter transaction and you'll need to calculate the value of the cryptocurrency in New Zealand Dollars (NZD) at the time it's received.
How to calculate the NZD equivalent of cryptocurrency
It will sometimes be necessary to calculate the NZD value of cryptocurrency, for example:
- you receive cryptocurrency that is not converted to NZD by a cryptocurrency merchant processor
- you dispose of one type of cryptocurrency in exchange for another.
You will need to calculate the value of the cryptocurrency in NZD on the relevant date.
Conversion rates may be obtained from the following centralised data repository sites.
You can also get conversion rates from a public exchange with comprehensive know-your-customer/anti-money-laundering procedures in place. Which exchange (or exchanges) is appropriate will depend on the circumstances.
For some 'alt coins' (cryptocurrency other than Bitcoin) it may be necessary to convert into US dollars, or another fiat currency, and then convert into NZD.
Rates can vary significantly between different exchanges and currencies. You must use a consistent exchange and conversion approach (for example, using a consistent time of day to determine the conversion rates).
Initial Coin Offerings (ICO)
If you are planning an Initial Coin Offering (ICO) you may need to consider the tax implications.
The tax implications will depend on the unique features of the cryptocurrency being issued and how it's distributed.
You may want to consider applying for a binding ruling to get certainty about your tax requirements. We recommend you seek the advice of a tax professional.
You must keep sufficient records so that you can determine your income and deductions. You must keep the records for 7 years.
If you are using mobile or desktop wallets and exchanges you should have access to your transaction history (deposits, transactions and withdrawals) and be able to export it in a commonly used file format like CSV. You should also keep your bank statements and cryptocurrency wallet addresses for verification purposes.
Some overseas software providers are developing accounting and tax reporting products for cryptocurrency customers. These applications and websites enable the following:
- manual CSV exchange imports,
- automatic API exchange imports,
- automatic API wallet imports
- CSV and Excel imports from exchanges.
If you use third party software, make sure you account for transactions in a way that meets New Zealand tax law.