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CRYPTOCURRENCIES AND TAX

Over the last decade, the use of digital or virtual currencies, known as "cryptocurrencies", has grown dramatically in popularity. A single piece of Bitcoin is currently valued at approximately $9,000 NZD. Some New Zealand retailers have already begun accepting Bitcoin as a form of payment, which has led to the Inland Revenue releasing a 'Questions & answers' considering the tax treatment of cryptocurrency.

For tax purposes, cryptocurrency is treated as property, which means that foreign currency gain or loss provisions do not apply. However, if a New Zealand business accepts cryptocurrency as a form of payment, the amount is treated as taxable business income based on the value of the cryptocurrency at the time it is received.

Any gain on sale of cryptocurrency is assessed by considering the original purpose for acquiring the currency. If the currency was acquired with the purpose of disposal, any proceeds made from selling the currency are taxable. IRD consider the nature of cryptocurrency means it is unlikely that a person would acquire it without the intention to sell or exchange it, meaning the majority of gains made on disposals would give rise to a tax liability.

At the moment, cryptocurrencies are unlikely to be considered "money" for GST purposes.  This means the purchase and sale of cryptocurrencies can have GST implications, if the vendor or purchaser are GST registered.

If you invest or trade in cryptocurrencies, be sure to keep an eye out for further developments from Inland Revenue, as they intend to refine its tax treatment as more information becomes available.