IRD issues guidance on taxation of cryptoassets received from airdrop and hard fork

Inland Revenue (IRD) has continued its focus on the taxation of cryptoassets with the release of items considering the taxation of cryptoassets received from airdrops and hard forks.

Consistent with earlier items, IRD says amounts received from disposing of cryptoassets should be treated as assessable income.

Taxation of cryptocurrency airdrops

A crypto airdrop occurs when a cryptoasset is distributed for free to participants. They are commonly used to help a cryptoasset gain attention.

IRD considers the receipt of airdropped cryptoassets to be taxable in situations where the recipient:

• Has a cryptoasset business.
• Acquired the cryptoassets as part of a profit-making undertaking or scheme.
• Provided services to receive the airdrop (and the cryptoassets are payment for the services provided).
• Receives airdrops regularly and the receipt has hallmarks of income.

If you are disposing the airdropped cryptoassets, IRD considers this to be taxable where a person:

• Has a cryptoasset business.
• Disposed of the cryptoassets as part of a profit-making undertaking or scheme.
• Provided services to receive the airdrop.
• Acquired the cryptoassets for their disposal.

In many cases, the disposal will be taxable. However, in some cases, airdropped cryptoassets may be passively acquired and will not be acquired for the purpose of disposal.

Taxation of cryptocurrency hard forks

A hard fork occurs when a change in the protocol of a blockchain network results in a new cryptoasset diverging from the existing one.

IRD considers the receipt of cryptoassets from a hard fork to be taxable where a person:

• Has a cryptoasset business.
• Acquired the cryptoassets as part of a profit-making undertaking or scheme.

IRD considers the disposal of cryptoassets received from a hard fork to be taxable where a person:

• Has a cryptoasset business.
• Disposed of the cryptoassets as part of a profit-making undertaking or scheme.
• Acquired the cryptoassets for their disposal.
• Acquired the original cryptoassets for the purpose of disposing of them (where the person receives the new cryptoassets through an exchange).

In most cases, the disposal will be taxable.

The taxation of cryptoassets is an area that is continually evolving. If you have acquired or sold cryptoassets this financial year, please speak with your adviser or contact a member of the Crowe Tax Advisory team.