Trying to report your crypto taxes anywhere in the world can be a nightmare — New Zealand is no exception.
Because cryptocurrency is such a new asset class, even seasoned investors have trouble tracking their transactions and reporting their taxes.
In this guide, we’ll break down everything you need to know to report your cryptocurrency taxes in New Zealand. We’ll share how different transactions are taxed, the forms you’ll need to fill out, and 3 simple steps to reduce your crypto tax liability!
This guide is updated regularly based on the latest guidance from the Inland Revenue Department.
In New Zealand, cryptocurrency is considered a form of property subject to income tax.
When you dispose of your cryptocurrency at a profit, you’ll recognize income based on how the price of your crypto has changed since you originally received it. Examples of disposals include selling your cryptocurrency, trading it for another cryptocurrency, using it to make a purchase, or gifting your cryptocurrency.
If you dispose of your cryptocurrency at a loss, you can reduce your taxable income for the year.
When you earn cryptocurrency, you’ll recognize income based on its fair market value at the time of receipt. Examples include earning mining, staking, or referral rewards.
There is no capital gains tax regime in New Zealand. All of your crypto income is grouped together and taxed similarly — whether it comes from gains on disposals or earned cryptocurrency.
In New Zealand, cryptocurrency is subject to normal income tax rates. You’ll pay 10.5 - 39% tax depending on your annual income.
It’s important to remember that New Zealand uses a progressive tax system. That means there’s no flat tax for all of your income. Instead, you’ll pay progressively higher taxes on different portions of your income.
Many people believe that because cryptocurrency is anonymous, there is no way for government agencies to track transactions. This isn’t true.
In the past, the IRD has requested customer information from exchanges operating in New Zealand.
In addition, it’s important to remember that transactions on blockchains like Bitcoin and Ethereum are publicly visible. Tax agencies around the world analyze these transactions to crack down on tax fraud.
Remember, the IRD has the ‘powers to investigate’ if you don’t accurately report your taxable income.
Typically, the limit for the IRD to reassess your tax return is four years. However, there is no time limit in cases where the taxpayer submitted fraudulent or wilfully misleading information.
The penalty for tax evasion is 150% of the resulting shortfall. Alternatively, the IRD can choose to prosecute. This can lead to a fine of up to $50,000 and imprisonment of up to five years.
While there’s no legal way to evade your cryptocurrency taxes in New Zealand, there are strategies that you can use to legally reduce your tax liability.
In New Zealand, the tax year runs from April 1 to March 31 of the following year
The deadline for reporting your taxes is July 7, after the end of the tax year.
It’s important that you don’t wait until the last minute to submit your tax return. Collecting the information you’ll need to report your taxes takes time, so you should get started as soon as you can.
New Zealand tax policies differ depending on your residency status. Here’s what you should know when it comes to filing your cryptocurrency taxes.
If you are a non-resident, you will only be taxed on income that is sourced in New Zealand. In most situations, it’s likely that crypto income will not fall into this category.
However, there are certain situations where you may pay New Zealand taxes on crypto income — for example, if you have a crypto business based in the country.
If you’re a new tax resident of New Zealand or you’re returning to the country after 10 years, you may qualify as a transitional tax resident. In this case, you’ll get a 4-year ‘grace period’ where you do not have to pay taxes on offshore income.
According to the IRD, this includes income from the sale of crypto assets (whether you acquired them before or after arriving in New Zealand).
However, some crypto income is still taxable during this period. This includes income from buying and selling crypto on a New Zealand exchange and/or receiving crypto as payment for labour.
If you’re considered a tax resident of New Zealand, you’ll be taxed based on your worldwide income. This includes any cryptocurrency income you may have — even if you acquired and disposed of your cryptoassets overseas.
Remember, you will be considered a ‘resident’ if you meet one of the following conditions.
If you’re not sure whether you’ll be considered a resident, check out the IRD’s guidance on the issue.
It’s likely that you’ll be taxed as a business in the following circumstances.
In some cases, trading cryptocurrency can rise to the level of business activity. Factors used to determine this include the frequency of your transactions, how long you hold your assets, and ‘whether your activity is organized and systematic’.
The IRD allows investors to use two different accounting methods to determine gains and losses from cryptocurrency: first-in-first-out (FIFO) and weighted average cost (WAC).
Let’s look at an example to better understand how these accounting methods work.
The answer is dependent on which accounting method Peter chooses.
With FIFO: The first BTC that Peter acquires is the first coin he disposes of. In this case, Peter’s gain is $15,000 ($25,000 - $10,000).
With WAC: Peter’s cost for acquiring crypto is $14,000, the weighted average of his two coins. In this case, his gain is $11,000 ($25,000 - $14,000).
Remember, you should use the same method year after year and keep records of which method you choose.
In most cases, cryptoassets are excluded from goods and services tax (GST). However, there are a few exceptions.
Receiving crypto as payment for goods and services: If you receive crypto in exchange for goods and services, you’ll need to pay GST. You’ll owe GST based on the value of your cryptoassets at the time you received them.
Selling an NFT to someone in New Zealand: If you sell more than $100,000 of NFTs to individuals based in New Zealand, you’ll owe GST. However, there is no GST if you sell an NFT to someone overseas.
Crypto mining: In certain situations, you may owe GST on mined cryptocurrency. The IRD states that crypto mining can be subject to GST if you are providing supply for a blockchain that only exists in New Zealand.
Buying cryptocurrencies with fiat currencies like BTC and ETH is not considered taxable.
When you sell cryptocurrency, you’ll recognize income based on how the value of your crypto has changed since you originally received it.
Trading cryptocurrency for another cryptocurrency is considered a taxable disposal. You’ll recognize income based on how the price of the crypto you’re trading away has changed since you originally received it.
In most cases, cryptocurrency mining is likely to be taxed as business activity. In this case, you can deduct the costs of relevant expenses such as electricity and mining equipment.
If you dispose of your mining rewards in the future, you may recognize additional income based on how the price of your mining rewards has changed since you originally received them.
Mining cryptocurrency may be non-taxable if you are pursuing the activity without the intention of making a profit. However, since crypto miners typically pursue profits, it’s unlikely that you’ll fall into this category.
Income earned from cryptocurrency staking is considered income at the time of receipt. If you dispose of your staking rewards in the future for a profit, you may recognize additional income.
Airdrops may or may not be taxable depending on the specifics of the situation.
In a case where an airdrop is received without the user taking any action, it’s likely that the rewards can be considered non-taxable.
However, if the recipient specifically carried out actions in order to qualify for an airdrop, it’s likely that rewards will be considered income at the time of receipt. This may include promoting the airdrop on social media or spending gas fees to claim the airdrop.
Airdrop disposals may be taxable in cases where the recipient is part of a cryptoasset business or disposed of their tokens as part of a profit-making undertaking.
During a hard fork, an existing blockchain splits and investors receive new units of cryptocurrency.
According to the IRD, hard forks are unlikely to be taxable upon receipt in most situations. The exception is if you own a cryptoasset business or acquired your cryptocurrency due to a profit-making undertaking or scheme.
For most investors, you’ll be taxed when you dispose of the cryptoassets you received during a hard fork.
In some situations, you may dispose of your cryptocurrency at a loss. This loss can be used to offset your income (including PAYE income) and lower your tax bill.
According to the IRD, gains from the disposal of non-fungible tokens (NFTs) are subject to income tax.
In addition, purchasing an NFT with cryptocurrency is considered a taxable disposal.
You’ll also be required to pay income tax when you sell an NFT that you’ve created.
NFT disposals are non-taxable if you acquired your NFT for personal enjoyment and not for profit. In this case, any potential gain is non-taxable. However, it’s your responsibility to prove the purpose of the original transaction.
If you sell more than $60,000 of NFTs in a 12-month period, you are required to pay GST. However, selling NFTs to investors overseas is zero rated for GST purposes.
The IRD has yet to provide guidance on DeFi protocols. Based on existing guidance, it’s reasonable to assume the following.
In New Zealand, giving a cryptocurrency gift to a friend or family member is considered a taxable disposal. If the price of your coins has appreciated since you originally received them, you will need to pay income tax.
Fees related to acquiring your crypto can be added to your cost base. This can reduce your total taxable income.
If any of your cryptoassets were stolen, you may be able to claim your original cost of acquisition as a deduction on your tax return. To claim this deduction, you’ll need to show the following:
It's recommended that you keep detailed records of your crypto transactions for at least seven years. This should include:
Keeping detailed records of your crypto transactions can be difficult, especially if you’re using multiple wallets and exchanges. That’s why hundreds of thousands of investors use crypto tax software to simplify the process.
Crypto tax software like CoinLedger can automatically import transactions from your exchanges and blockchains, helping you save hours of time and effort during tax season.
Once you’ve collected the information you need for your cryptocurrency transactions, you can report your income on your MyIR Account on the IRD homepage.
Alternatively, you can fill out the Individual Tax Return Form (IR3) manually.
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Step 1: Connect your CoinLedger account to your exchanges and wallets.
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