Despite the risks associated with investing in cryptocurrency assets, the asset class continues to gain appeal amongst institutional and individual investors. But many crypto asset investors may not be aware of the tax obligations they have in relation to their crypto assets under New Zealand taxation legislation.
In the very recent past, crypto assets were not considered to be a mainstream investment option. Many investors passed the asset class off as a joke or a fad, believing the interest around crypto assets would die down in due course.
But as interest in cryptocurrency has increased and institutional investors have hopped on board, cryptocurrency has moved from the dark corners of the internet to right under the noses of the Inland Revenue Department (IRD).In New Zealand, crypto assets are treated as property rather than a currency for tax purposes. As such, they may be subject to tax on disposal. The IRD has clarified that a ‘disposal’ includes:
Whether you are holding crypto assets as a long-term investment, trading in crypto assets, mining crypto assets, staking crypto assets, lending crypto assets or investing them otherwise, the provisions that tax a disposal of crypto assets need to be considered. Any of these activities could be subject to tax under the provisions, depending on the facts of your case.
Additionally, there are a number of factors which may influence whether a gain/loss made from crypto assets is taxable/deductible or not. If a disposal of crypto assets is taxable under the aforementioned provisions, you may be able to deduct certain costs when it comes time to calculate your tax liability for the year. If you are a business owner and using crypto assets for business transactions or providing crypto assets to employees, there may also be tax implications in relation to these transactions.
With tax law in this area constantly evolving, it can be difficult to find an adviser who understands this asset class, and the complexity of its investment channels and methods. The Crowe Tax Advisory team has experienced crypto experts who have provided crypto asset advice to clients with various types of investments and performed numerous year-end tax calculations for clients with these holdings.
The tax rules relating to crypto assets are complex and the tax outcome is heavily dependent on the facts of your case. If you would like to discuss your crypto asset holdings and how you may be able to structure your holdings to achieve the best commercial outcome, please contact the Tax Advisory team today.