If you live in New Zealand and happen to be involved in crypto transactions, you might owe some taxes to the IRD. And If you’re struggling to figure out how crypto taxes in New Zealand work, you’re not alone. Thousands don’t understand how crypto transactions are taxed in New Zealand and how it affects them over a tax year.
That’s why we decided to create the most comprehensive tax guide to simplify crypto taxes in New Zealand. This guide touches upon every aspect of crypto taxation and goes into detail on how crypto transactions are taxed in New Zealand, how to calculate your crypto taxes, and how to report them easily.
Note that this guide will be updated regularly and will reflect any new guidelines issued by the IRD, so make sure you keep revisiting this piece to make sure you don’t miss out on important updates.
So let’s get started…
How do Crypto Taxes in New Zealand Work?
Although cryptocurrencies have been around for over a decade now, tax authorities in New Zealand started talking about them just recently towards the end of 2017. Just like most countries, New Zealand doesn’t consider Bitcoin and other blockchain-based assets as legal tender and denies them the legal status of currency within the national borders. Instead, the IRD treats Bitcoin and other crypto assets as property for tax purposes.
The tax authorities have refrained from drafting new laws for crypto taxation and have issued guidelines to accommodate crypto transactions under existing income tax laws. However, the status quo might shift towards a more concrete tax regime as new legislation is being discussed by the tax authorities.
Here’s an excerpt from the recent guidelines issued by the IRD regarding the acquisition and disposal of crypto assets.
“If you acquire crypto assets to dispose of them you need to pay income tax on any profit you make. For example, if you buy or mine crypto assets to sell or exchange them. If you make a loss when you sell your crypto assets you may be able to claim this loss.”
Since crypto assets are considered to be capital assets (property), any gains incurred from their disposal are called capital gains. However, these gains are considered to be income in New Zealand and are taxed under the regular income tax laws.
Crypto Gains Tax
Cryptocurrency is not considered a currency by the New Zealand government but is instead considered a form of property. This means that any capital gains made from the sale of cryptocurrency are subject to the same tax rules that apply to capital gains made from the sale of other forms of property, such as real estate or stocks. In New Zealand, the tax system does not feature a separate tax for capital gains. Rather, all capital gains are classified as income and subject to taxation under the income tax regulations.
Capital gains from the sale of cryptocurrencies are considered taxable income and are subject to income tax. This means that if you sell your cryptocurrency for a profit, it is considered a capital gain and is taxed as part of your income for the relevant tax year.
Income Tax Rate New Zealand
New Zealand’s tax system operates on a progressive principle, meaning that as one’s earnings rise, so does the tax rate. For the 2021–2022 fiscal year, tax brackets in New Zealand range from 10.5% to a top rate of 39%.
How to Calculate your Crypto Gains and Losses?
Calculating your crypto gains or losses is a straightforward process. All you need to do is to find the difference between the proceeds from the disposal of a crypto asset and your cost basis(the price paid to acquire the asset, which might include any gas fees or transaction fees).
Now there are two methods you can use to calculate your cost basis in New Zealand, the first is FIFO(First-In-First-Out) and the second is the ABC(Average Cost Basis) method. You can pick anyone for your cost-basis calculations, however, it’s important to ensure that once you pick an accounting method, you stick to it for your cost-basis calculations for the subsequent tax years.
Also, using LIFO accounting for cost-basis calculations is not allowed in New Zealand.
For accurate calculation of the purchase price when holding multiple units of the same cryptocurrency obtained at varying times and prices, utilizing a method like FIFO is imperative. FIFO entails selling the oldest acquired coins first and is widely favoured in various other nations.
When arriving at the purchase price becomes challenging, a prudent strategy is to view its value as nil. But this approach requires paying taxes on the complete sum, leading to an unwarranted increase in the tax liability.
Crypto Losses
Losses are a part of the game when you trade or invest in a capital asset because capital markets are largely speculative and it’s difficult to predict the market movement with 100% accuracy. Fortunately, you can offset your crypto losses against the capital gains you’ve made in a tax year.
Therefore, it’s imperative to actively keep track of all your losses and report them to the IRD, so that you can offset your losses against the gains and carry them forward to the subsequent tax year in case your losses far exceed your gains.
Crypto Tax Breaks New Zealand
Although it’s not possible to avoid paying crypto taxes entirely, you can claim some deductions and lower your tax bill in New Zealand. Here are some ways you can reduce your tax liabilities:
- Transaction Fees Deductions
Any additional costs incurred when buying a crypto asset in the form of transaction fees or gas fees are deductible costs and you can offset them against your gains and lower your tax bills. When viewed individually, transaction fees and gas fees may appear minimal. However, when accumulated over a year, they contribute to a substantial sum.
2. Capital Loss Deductions
Losses are not always bad news, if you’ve made some losses while trading or investing in crypto assets over a tax year, you can offset them against your capital gains and claim a tax deduction, as long as you have a detailed account of all your losses and you have reported them to the IRD.
Cryptocurrency and Tax Residency
Residents, Non-residents, and Returning residents are taxed differently in New Zealand.
Non-Residents for Taxes
The ambit of crypto taxes in New Zealand is not properly defined for non-residents. A non-resident in New Zealand only has to pay taxes on income that has been sourced from New Zealand. However, the term “source” for tax purposes has not been defined properly for non-residents, leaving behind a trail of uncertainties, confusion, and tax loopholes.
Although as far as crypto assets are concerned, any assets held in NZD, or traded for NZD are considered to be a taxable event according to the IRD. To keep taxation of non-residents streamlined, most countries including New Zealand have double tax agreements, and these profits usually attract tax liabilities in a person’s home country.
Any income derived from outside New Zealand is considered to be non-taxable for non-residents.
New and Returning Residents
New and returning residents in New Zealand are granted a “grace period” by the IRD that lasts for 4 years and they are considered “transitional tax residents”. And during this period they have to pay zero taxes on a majority of the offshore income. While it’s still unclear whether revenue generated from crypto assets is included in the list of non-taxable offshore income, the IRD is considering the prospect of issuing new guidelines regarding their taxation. But until they do, it’s a great area for new and returning residents.
Residents for Tax Purposes
Residents in New Zealand are taxed regardless of the source of their income. And this includes crypto assets. If you live in New Zealand and you have bought, sold, mined, or traded crypto assets during a tax year, you have to report these transactions to the IRD on your tax return and pay your taxes.
When to report Crypto Taxes in New Zealand?
In New Zealand, the tax year stretches from April 1st to the following March 31st. So, if you’re compiling your tax return for the 2021/2022 fiscal year, ensure submitting it by July 7th, 2022. It’s worth keeping in mind that if you submit any filings past the deadline could result in fines and additional charges.
How to file crypto taxes in New Zealand?
In New Zealand, you can file your cryptocurrency taxes through the Inland Revenue Department (IRD). The IRD requires that you declare all income, including income from cryptocurrency transactions, on your tax return.
There are two ways you can file crypto taxes in New Zealand:
- Using the online portal myIR
- Using physical forms
People usually prefer the online portal over physical forms as it is easy to track and edit. Here’s a stepwise breakdown of the entire process of filing your income tax return in New Zealand.
Step 1- Fetch all relevant documents
Before you start filing your tax return, here’s a list of relevant documents you should keep in handy according to the IRD.
- Your bank account details
- A detailed account of all the income you’ve made during the tax year
- Details of expenses you want to claim on your tax return
Step 2- Fill out all necessary forms
If the source of your income varies, you might have to fill out some additional forms. Fortunately, if you choose to file your tax return online through the myIR portal, you can conveniently include these forms as part of the process.
- Form IR10: For untaxed business income
- Form IR3R- For rental income
- Form IR833- For income made from bright line property sale
- an ‘Adjust your income’ form in the ‘I want to…’ menu for any adjustments to your income related to student loans or family income.
Step 3- Complete your tax return
The final step is to complete your tax return which might be a bit complicated if it’s your first time filing your taxes. So here’s the IR3G tax return guide as provided by the IRD to help you complete your tax return.
Can the IRD track crypto?
Yes, the Inland Revenue Department (IRD) in New Zealand can track cryptocurrency transactions. Therefore, individuals who engage in cryptocurrency transactions must keep records of their transactions and declare any income or gains made from their cryptocurrency holdings on their tax returns. The IRD also can access information from cryptocurrency exchanges and other third-party providers to track and verify cryptocurrency transactions.
What crypto records will the IRD want?
The IRD has released specific guidelines regarding record-keeping for taxpayers. You might need the following records when filing your tax returns:
- Name of the asset involved in transactions
- Date of the transaction
- Type of transaction (acquisition, disposal, swap, etc)
- Quantity of tokens
- The value of the cryptocurrency in NZD at the time of the transaction
- Total units of each cryptocurrency held at the beginning and end of the year
- Exchange records and other relevant statements
- Wallet addresses of your digital wallets
In the event of an audit by the IRD, it’s crucial to have detailed records of all your cryptocurrency transactions on hand. As per current tax regulations, these records must be kept for at least seven years, even if you no longer possess any cryptocurrency. Failing to produce these records during an audit can result in consequences.
Tax-Free Crypto Transactions
In New Zealand, the following are some tax-free cryptocurrency transactions:
- If you use cryptocurrency to purchase goods or services for personal use and the value of the transaction is $60,000 or less, it is considered tax-free.
- If you earn cryptocurrency through mining, this income is tax-free.
- If you donate cryptocurrency to a registered charity, the transaction is tax-free.
- If you gift cryptocurrency to someone, it is tax-free as long as the value of the gift is $6,000 or less.
Taxed Crypto Transactions
Listed below are some of the taxable crypto transactions in New Zealand:
- If you use cryptocurrency to conduct business activities, any profits you make from these activities are subject to income tax.
- If you sell or trade cryptocurrency for a profit, the profit is considered a capital gain and is subject to capital gains tax.
- If you receive cryptocurrency as a form of payment for your work, it is considered taxable income and must be declared on your tax return.
- If you purchase cryptocurrency as an investment, gains made from the investment are subject to capital gains tax.
Taxes on Buying and Selling Crypto
Buying crypto with fiat currency is not a taxable event, according to the IRD. Crypto assets do not attract tax liabilities unless they’re disposed of. Any sale, trade, exchange, or transfer of a cryptocurrency, as well as the conversion of crypto to fiat currency, is considered disposal and may be subject to capital gains tax. The tax treatment of crypto assets may vary based on the specific circumstances of each case.
So let’s say you swap ETH for BTC. This event is taxable because you have disposed of your BTC holdings. To calculate the amount you owe taxes on, you need to first identify your cost basis(the cost incurred to acquire an asset) from back when you bought these ETH tokens and then subtract it from the price of BTC at the time of acquisition. The difference between these two assets is what you pay taxes on.
People often assume that the only way to attract tax obligations is by selling their assets, and that leads to underreporting on tax reports and unsolicited legal complications for people.
Taxes on Crypto Staking
The IRD groups crypto mining and crypto staking under the same bucket and considers both a service. The tokens received as a staking reward are considered income and therefore attracts an income tax in New Zealand.
It’s important to note that the tokens are taxed at the time you receive them as a reward and are also taxed at the time of disposal if you sell them for a profit.
Staking, similar to crypto mining, may be viewed by the IRD as a profit-making venture, a business operation, a source of ordinary income, or simply a leisure activity. If deemed a hobby by the IRD, your staking rewards and any future sales profits will be exempt from taxation. However, it’s important to note that the criteria for classifying an operation as a hobby are stringent.
De-Fi Crypto Taxes New Zealand
In New Zealand, the tax treatment of De-Fi transactions is determined by the nature of the transaction and the individual’s circumstances. De-Fi transactions, like any other investment, may be subject to income tax, capital gains tax, or goods and services tax (GST) depending on the specific circumstances of the transaction.
Income tax may apply to the profits earned from De-Fi transactions, and capital gains tax may apply to the gains made from disposing of De-Fi assets. GST may apply to De-Fi transactions involving the supply of goods or services.
Tax on Mining Crypto New Zealand
Crypto mining is considered a service by the IRD, and any income incurred from crypto mining is taxable according to the latest update on the crypto mining guidelines. And since it is categorised as a service by the IRD, the provisioning of this service also attracts a GST(Goods and Service Tax) in New Zealand.
However, the GST is zero in almost all cases because the service is offered to a blockchain set up outside New Zealand. However, the tax rate that applies to the income made through mining activities depends on the category in which your mining activities fall.
There are four categories your mining activities might fall in:
- Mining as a hobby
- Mining as a business
- Mining for ordinary income
- Mining as a profit-making scheme
You can look at how the IRD categorises mining activities here.
How are Airdrops and Forks Taxed in New Zealand?
According to the QB 06 notification issued by the IRD, airdrops are subjected to income tax at the receipt, at disposal, or both.
An airdrop is taxed at the time of receipt in the following cases:
- Your crypto activity is considered a business endeavour
- The airdrop was part of a planned profit-making scheme
- You received the airdrop for providing a service
- You receive a recurring income through airdrops
Any airdrops that do not fall in the above-mentioned categories inherit a cost basis of zero by default so that the entire value of the tokens is subjected to an income tax at the time of disposal.
Airdrops will be taxed at the time of disposal if:
- Your crypto activity is considered a business endeavour
- The airdrop was part of a planned profit-making scheme
- You received the airdrop for providing a service
- You receive a recurring income through airdrops
According to the IRD guidelines, cryptocurrency forks are considered to be taxable events and any income derived from a fork must be included in the taxpayer’s taxable income.
For example, if an individual holds a cryptocurrency at the time of a fork and receives new coins as a result of the fork, the value of the new coins is considered to be taxable income. The individual must report the fair market value of the new coins in New Zealand dollars at the time of receipt in their tax return.
Crypto Margin Trading, Futures and CFDs
Understanding cryptocurrency futures and margin trading taxes in New Zealand is challenging as there is no regulatory framework. The best approach is to study how other countries handle these transactions and seek the advice of a tax professional. A prudent step as a trader or investor would be to Consult with a tax advisor if you’re unsure about reporting taxes.
Exchanges trading futures contracts keep a record of your realized profits and losses (PnL) in the settlement currency, usually USD, USDT or BTC. If you score a win of $1000, your account will reflect the victory and be taxed as income. On the flip side, if you incur a loss, it’ll be deducted from your account and can be used to balance out other gains. Essentially, you’ll only be taxed on the net gains from your cryptocurrency futures trading endeavours in a given financial year.
NFT Taxes New Zealand
According to the IRD, NFTs are similar to crypto assets because they are built on the same technology and exist on distributed ledgers. However, they’re not the same as they are unique and non-fungible.
NFTs are considered a service for GST purposes. According to the IRD:
“NFTs are classified as a service for GST. Selling NFTs is subject to GST so you need to register for GST if you sell more than $60,000 worth of NFTs in a 12-month period. If the NFTs are sold to people outside of New Zealand the sales are zero-rated for GST purposes.”
Also, some smart contracts governing the sale and transfer of NFTs are encoded in a way that every time the NFTs are sold in an open market, the creator receives royalties. These royalties are considered income for tax purposes and are subjected to capital gains tax.
As per the IRD guidelines, you’ll have income tax liabilities on the sale of NFTs if:
- your business creates NFTs
- you buy and sell NFTs to make a profit
- you acquired NFTs for disposal.
NFTs offer a unique advantage over crypto assets, as they can be not only used but also enjoyed. If you purchase NFTs for personal use, you won’t have to pay any taxes when you dispose of them. However, if you acquire NFTs as an investment, it’s important to have clear documentation showing your intentions at the time of purchase.
Lost or Stolen Crypto
In New Zealand, capital losses resulting from the theft or loss of cryptocurrency can be considered capital loss for tax purposes. To claim a capital loss from theft or loss of cryptocurrency, you need to demonstrate that the loss was not due to a voluntary disposition, such as selling or exchanging the cryptocurrency.
To claim a capital loss, you need to provide evidence of the theft or loss, such as a police report or a statement from a reputable cryptocurrency exchange, and keep records of the cost of the cryptocurrency, the date it was acquired, and the date it was lost or stolen. By doing so, you may be able to offset your capital loss against capital gains from other sources, reducing your overall tax liability.
Frequently Asked Questions(FAQs)
- What happens if you don’t report cryptocurrency on your tax return?
If you don’t report cryptocurrency on your crypto taxes in New Zealand, it can result in penalties and fines from the Inland Revenue Department (IRD). The IRD can assess tax liabilities and issue fines for non-compliance, and if the non-compliance is found to be intentional, there could even be criminal charges brought against the individual. It’s important to accurately report all income, including from cryptocurrency, to avoid these consequences.
2. How to file crypto taxes with the IRD?
There are two ways you can file crypto taxes in New Zealand:
- Using the online portal myIR
- Using physical forms
People usually prefer the online portal over physical forms as it is easy to track and edit.
3. Is Crypto Taxable in New Zealand?
Yes, crypto transactions are taxable in New Zealand. Cryptocurrency gains are treated as taxable income and subject to income tax. Buying and selling crypto assets is not subject to GST, so you do not need to register for GST.
However, GST-registered businesses that issue security token crypto assets can claim input tax credits on their capital-raising costs. If you receive crypto assets as payment for goods and services, you need to charge GST on those goods and services and return GST on the value in New Zealand dollars of the number of crypto assets you receive as payment. And when you sell the crypto assets received as payment, you do not need to account for GST on the sale.
Overall, this means that while crypto assets are excluded from GST, normal GST rules apply to any goods and services bought or sold using them.
4. Is cryptocurrency legal in New Zealand?
Yes, cryptocurrency is legal in New Zealand. The New Zealand government has taken a relatively relaxed approach to the regulation of cryptocurrencies, and there are currently no specific laws in place that govern the use of cryptocurrencies.
However, the Reserve Bank of New Zealand and the Financial Markets Authority have issued warnings to investors about the risks associated with investing in cryptocurrencies. Additionally, the Inland Revenue Department (IRD) has issued guidelines on the tax treatment of cryptocurrencies, which requires individuals to report any income derived from cryptocurrencies as taxable income.
