June 20, 2023

Crypto fact Sheet

Cryptoassets are treated as a form of property for tax purposes. While there are different types of cryptoassets, the tax treatment depends on the characteristics and use of the cryptoassets. It does not depend on what they are called.

Cryptoassets are not subject to GST when they are bought or sold, but do have GST implications when they are received as payment for normal business activities.

Cryptoassets need to be declared as a source of income, if you have not let us know already you have investment in Cryptoassets please contact us asap to advise.

What are Cryptoassets

Cryptoassets are cryptographically secured digital representations of value that can be transferred, stored or traded electronically. They use some form of distributed ledger technology such as blockchain.

Cryptoassets is the term we use. They are also known as:

  • cryptocurrencies
  • cryptographic assets
  • digital financial assets
  • digital tokens
  • virtual currencies.

A wide range of cryptoassets exist, including:

  • payment tokens
  • security tokens
  • utility tokens.

The cryptoasset sector is still developing and there is currently no standard terminology used.

Buying and Selling Cryptoassets

In most cases, the amounts you get from selling, trading or exchanging cryptoassets are taxable (this includes when you exchange one type of cryptoasset for another).

You may have to pay tax because you’re:

  • acquiring cryptoassets for the purpose of disposal (for example to sell or exchange)
  • trading in cryptoassets
  • using cryptoassets for a profit-making scheme.

It’s important to look at whether your cryptoasset activity falls into any of these categories.

Taxing cryptoasset income

You need to file a tax return when you have taxable income from your cryptoasset activity.

Before you can put your cryptoasset net income (or loss) in your tax return you need to:

  • calculate the New Zealand dollar value of your cryptoasset transactions
  • work out your cryptoasset income and expenses.

If you held cryptoassets that were stolen, you may be able to claim a deduction for the loss.

Your cryptoasset income might include income from:

  • mining cryptoassets(such as block rewards and transaction fees, including income from a mining pool)
  • staking cryptoassets or using a staking-as-a-service provider
  • lending cryptoassets to another person (including crypto 'interest')
  • selling or exchanging cryptoassets (including mining rewards)
  • getting paid in cryptoassets for goods or services you provide.

Usually these amounts are income in the income year they are received.

If you hold cryptoassets as trading stock, your income also includes the closing value of your trading stock. This is the value of the cryptoassets you hold as trading stock at the end of the income year.

It’s important to keep good records for all your transactions with cryptoassets.

Cryptoasset Record Keeping

You'll need to keep records of your cryptoasset transactions to support the position taken in your tax return. This includes:

  • the type of cryptoasset
  • date of the transaction
  • type of transaction(for example, received or disposed of)
  • number of units
  • value of the transaction in New Zealand dollars
  • total units of each cryptoasset held at the beginning and end of the year
  • exchange records and bank statements
  • wallet addresses.

You’ll need to keep these records for at least 7 years, even if you no longer have any cryptoassets.

If you use cryptoasset exchanges, you should download your transaction history regularly. Cryptoasset exchanges may only keep records for a short period of time or the exchange may no longer exist when you do your tax return.

You might use an online cryptoasset income tax calculator to help you meet your record keeping obligations and work out your tax. Many of these calculators are provided by overseas software providers. You'll need to make sure you account for your transactions in a way that meets New Zealand tax law.

If your cryptoasset mining or staking activity is GST registered, you will need to keep the required GST records.

Cryptoasset expenses

The type of expenses you can claim will depend on whether you are in business or not. However, you can generally deduct the following expenses from your cryptoasset income.

  • The cost of your cryptoassets. This is generally the amount you paid for your cryptoassets including any transaction fees.
  • Depreciation of capital assets such as computer hardware or software.
  • Interest charged on money you’ve borrowed to buy your cryptoassets (only if any profit from their sale is taxable).
  • Other expenses in relation to your cryptoasset activity. For example, if you're a miner this could include electricity or rental costs.

If you hold cryptoassets as trading stock, your expenses also include the opening value of your trading stock. This is generally the same as the closing value of your trading stock at the end of the previous year. If it’s your first year in business you may not have opening stock.

You can usually claim a deduction in the income year you incur the expense. Generally this is when you make a payment. If you do not hold cryptoassets as trading stock, the deduction for the cost of cryptoassets is only available when you sell or exchange them.

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