New Zealand Crypto Tax Guide 2024
If you live in New Zealand and happen to be involved in crypto transactions, you might owe some taxes to the IRD. And If you’re struggling to figure out how crypto taxes in New Zealand work, you’re not alone. Thousands don’t understand how crypto transactions are taxed in New Zealand and how it affects them over a tax year.
That’s why we decided to create the most comprehensive tax guide and simplify crypto taxes for investors in New Zealand. This guide touches upon every aspect of crypto taxation and goes into detail on how crypto transactions are taxed in New Zealand, how to calculate your crypto taxes, and how to report them easily.
Note that this guide will be updated regularly and will reflect any new guidelines issued by the IRD, so make sure you keep revisiting this piece to make sure you don’t miss out on important updates.
So let’s get started…
Latest Updates/Guidelines
14/08/23 - Updated to accommodate ICO, Gifts and Donations Taxes
14/08/23 - Updated to accommodate DAO Taxes
How is Crypto Taxed in New Zealand?
Although cryptocurrencies have been around for over a decade now, tax authorities in New Zealand started talking about them just recently towards the end of 2017. Just like most countries, New Zealand doesn't consider Bitcoin and other blockchain-based assets as legal tender and denies them the legal status of currency within the national borders. Instead, the IRD treats Bitcoin and other crypto assets as property for tax purposes.
The tax authorities have refrained from drafting new laws for crypto taxation and have issued guidelines to accommodate crypto transactions under existing income tax laws. However, the status quo might shift towards a more concrete tax regime as new legislation is being discussed by the tax authorities.
Here’s an excerpt from the recent guidelines issued by the IRD regarding the acquisition and disposal of crypto assets.
“If you acquire crypto assets to dispose of them you need to pay income tax on any profit you make. For example, if you buy or mine crypto assets to sell or exchange them. If you make a loss when you sell your crypto assets you may be able to claim this loss.”
Since crypto assets are considered capital assets (property), any gains incurred from their disposal are usually considered capital gains. However, these gains are considered income in New Zealand and are taxed under the regular income tax laws.
Capital gains are taxed under a progressive income tax infrastructure, with rates varying from 10.5% to 39% based on the value of your gains.
Consider the following transactions:
23/01/22 - Oliver buys 2 BTC
12/02/22 - Oliver buys 3 ETH
14/03/22 - Oliver sells 1 BTC
16/06/22 - Oliver sells 2 ETH
As evident from the above ledger of transactions, two disposals were made.
Let’s assume that both sell transactions resulted in a capital gain. And since we haven’t discussed how capital gains calculations work, we will simply consider the gains to be $21,000 for the BTC disposal and $11,000 for the ETH disposal.
Collective gain from both disposals = $32,000
This is your taxable income base.
Can the IRD track crypto?
Yes, the Inland Revenue Department (IRD) can track cryptocurrency transactions. Therefore, individuals who engage in cryptocurrency transactions must keep records of their transactions and declare any income or gains made from their cryptocurrency holdings on their tax returns. The IRD can also access information from cryptocurrency exchanges and other third-party providers to track and verify cryptocurrency transactions.
Crypto Gains Tax
The New Zealand government does not classify cryptocurrency as a currency but rather as property. Therefore, capital gains resulting from cryptocurrency sales are subject to the same tax regulations as gains from other types of property, such as real estate or stocks. In New Zealand, there is no separate capital gains tax; instead, all capital gains are treated as income and taxed accordingly under the income tax regulations.
Selling cryptocurrency for a profit qualifies as a taxable capital gain, and it is included as part of your income for the applicable tax year.
Income Tax Rate New Zealand
New Zealand's tax system operates on a progressive principle, meaning that as one's earnings rise, so does the tax rate. For the 2021-2022 fiscal year, tax brackets in New Zealand range from 10.5% to a top rate of 39%.
How to Calculate Crypto Gains and Losses?
Calculating your crypto gains or losses in New Zealand is a simple process. You subtract your cost basis (including acquisition price, gas fees, and transaction fees) from the proceeds of selling a crypto asset.
Two methods are available for calculating your cost basis: FIFO (First-In-First-Out) and ACB (Average Cost Basis). It is crucial to choose one accounting method and use it consistently for cost-basis calculations in future tax years.
Also, using LIFO accounting is not allowed in New Zealand.
A method like FIFO is convenient for accurate calculation of the purchase price when holding multiple units of the same cryptocurrency obtained at varying times and prices. FIFO entails selling the oldest acquired coins first and is widely favoured in most nations.
When arriving at the purchase price becomes challenging, a prudent strategy is to view its value as nil. But this approach requires paying taxes on the complete sum, leading to an unwarranted increase in the tax liability.
Consider the following transactions:
12/02/22 - Noah buys 2 BTC for $32,000 each
14/04/22 - Noah buys 3 ETH for $2,300 each
18/05/22 - Noah buys 1 BTC for $30,000
22/06/22 - Noah buys 2 ETH for $2,500 each
13/07/22 - Noah sells 1 BTC for $40,000
15/07/22 - Noah sells 2 ETH for $3,000 each
24/08/22 - Noah sells 2 BTC for $42,000 each
As evident from the above ledger of transactions, Noah made three disposals.
And since we have multiple assets of the same kind acquired at different times, we will be using the FIFO accounting method for cost basis calculations.
1st Disposal
1 BTC sold for $40,000
Since the first token acquired is the first one to be disposed of. The BTC disposed of is from the same bunch acquired on 12/02/22 for $32,000.
Cost Basis = $32,000
Disposal Amount = $40,000
Capital Gain = $40,000 - $32,000 = $8,000
2nd Disposal
2 ETH sold for $3,000 each
Now these ETH tokens have the cost basis of the ones acquired on 14/04/22 for $2,300
Cost basis = $2,300
Disposal Amount = $3,000
Capital Gain = $3,000 - $2,300 = $700(From 1 ETH disposal)
Gain from 2 ETH disposal = 2*700 = $1,400
3rd Disposal
2 BTC sold for $42,000 each
This transaction here is a bit more complicated than the above disposals because there are two different types of BTC tokens involved in the transaction.
Let’s call them BTC-1 and BTC-2
BTC-1 was acquired on 12/02/22 for $32,000
BTC-2 was acquired on 18/05/22 for $30,000
Cost Basis for BTC-1 = $32,000
Cost Basis for BTC-2 = $30,000
Disposal Amount = $42,000
Capital Gain (BTC-1) = $42,000 - $32,000 = $10,000
Capital Gain (BTC-2) = $42,000 - $30,000 = $12,000
Total Gain = $22,000
Now, collective gain from three disposals = $8,000 + $1,400 + $22,000 = $31,400
Crypto Losses
Losses are a part of the game when you trade or invest in a capital asset because capital markets are largely speculative. It’s difficult to predict the market movement with 100% accuracy. Fortunately, you can offset your crypto losses against the capital gains you’ve made in a tax year.
Therefore, it’s imperative to actively track all your losses and report them to the IRD, so that you can offset your losses or carry them forward to the subsequent tax year in case you have leftover losses.
Lost or Stolen Crypto
In New Zealand, if you experience the theft or loss of cryptocurrency, you may be able to treat it as a capital loss for tax purposes. To claim a capital loss in such cases, you must provide evidence that the loss was not a result of voluntary disposition, such as selling or exchanging the cryptocurrency.
To claim a capital loss, you need to provide evidence of the theft or loss, such as a police report or a statement from a reputable cryptocurrency exchange, and keep records of the cost of the cryptocurrency, the date it was acquired, and the date it was lost or stolen. By doing so, you may be able to offset your capital loss against capital gains from other sources, reducing your overall tax liability.
Crypto Tax Breaks New Zealand
Although it’s impossible to avoid paying crypto taxes entirely, you can claim some deductions and lower your tax bill in New Zealand. Here are some ways you can reduce your tax liabilities:
- Transaction Fees Deductions
In New Zealand, any additional costs associated with purchasing a crypto asset, such as transaction fees or gas fees, are considered deductible expenses. These expenses can be offset against your gains, helping to reduce your overall tax liability. Although transaction fees and gas fees may seem insignificant on an individual basis, when accumulated over a year, they can add up to a significant amount.
- Capital Loss Deductions
Losses are not always bad news. If you’ve made some losses while trading or investing in crypto assets over a tax year, you can offset them against your capital gains and claim a tax deduction, as long as you have a detailed account of all your losses and you have reported them to the IRD.
Crypto Cost Basis Method
The examples we’ve used so far are primitive and don’t represent real-world transactions. They are far more complex and have multiple assets of the same kind acquired at different dates and prices. For such complex transactions you have no other choice but to rely on specialised accounting methods as specified by the individual tax authority of your country.
The IRD allows investors to use one of the following methods for cost-basis calculations:
- The FIFO Method is where the first asset you buy is the first one you sell.
- The ACB Method is where the cost basis for an asset is taken to be the average acquisition price.
You are free to use any one of the two accounting methods, just make sure you stick to the same accounting method in the subsequent tax years to avoid discrepancies in tax reports.
Here’s an example to better understand how these accounting methods work.
Consider the following transactions:
03/01/22 - Amelia bought 1 BTC for $28,000
14/02/22 - Amelia bought 1 BTC for $30,000
19/03/22 - Amelia bought 1 BTC for $32,000
04/06/22 - Amelia sold 1 BTC for $40,000
- Using FIFO Accounting
The first BTC was acquired on 03/01/22 for $28,000
So the cost basis is $28,000 for this disposal
Disposal Amount = $40,000
Capital Gain = $40,000 - $28,000 = $12,000
- Using ACB Accounting
Since there are three instances where Amelia bought BTC.
We need to calculate the average acquisition price.
1st acquisition = $28,000
2nd acquisition = $30,000
3rd acquisition = $32,000
Average Acquisition Price = ($28,000 + 30,000 + $32,000)/3 = $30,000
Cost basis = $30,000
Disposal Amount = $40,000
Capital Gain = $40,000 - $30,000 = $10,000
Cryptocurrency and Tax Residency
Residents, Non-residents, and Returning residents are taxed differently in New Zealand.
Non-Residents for Taxes
The ambit of crypto taxes in New Zealand is not properly defined for non-residents. A non-resident in New Zealand only has to pay taxes on income that has been sourced from New Zealand. However, the term “source” for tax purposes has not been defined properly for non-residents, leaving behind a trail of uncertainties, confusion, and tax loopholes.
Although as far as crypto assets are concerned, any assets held in NZD, or traded for NZD are considered to be a taxable according to the IRD. To keep taxation of non-residents streamlined, most countries including New Zealand have double tax agreements, and these profits usually attract tax liabilities in a person’s home country.
Any income derived from outside New Zealand is considered to be non-taxable for non-residents.
New and Returning Residents
New and returning residents in New Zealand are granted a “grace period” by the IRD that lasts for 4 years and they are considered “transitional tax residents”. And during this period they have to pay zero taxes on a majority of the offshore income. While it’s still unclear whether revenue generated from crypto assets is included in the list of non-taxable offshore income, the IRD is considering the prospect of issuing new guidelines regarding their taxation. But until they do, it’s a great area for new and returning residents.
Residents for Tax Purposes
Residents in New Zealand are taxed regardless of the source of their income. And this includes crypto assets. If you live in New Zealand and you have bought, sold, mined, or traded crypto assets during a tax year, you have to report these transactions to the IRD on your tax return and pay your taxes.
Tax-Free Crypto Transactions
In New Zealand, the following are some tax-free cryptocurrency transactions:
- If you use cryptocurrency to purchase goods or services for personal use and the value of the transaction is $60,000 or less, it is considered tax-free.
- If you earn cryptocurrency through mining, this income is tax-free.
- If you donate cryptocurrency to a registered charity, the transaction is tax-free.
- If you gift cryptocurrency to someone, it is tax-free as long as the value of the gift is $6,000 or less.
Taxed Crypto Transactions
Listed below are some of the taxable crypto transactions in New Zealand:
- If you use cryptocurrency to conduct business activities, any profits you make from these activities are subject to income tax.
- If you sell or trade cryptocurrency for a profit, the profit is considered a capital gain and is subject to capital gains tax.
- If you receive cryptocurrency as a form of payment for your work, it is considered taxable income and must be declared on your tax return.
- If you purchase cryptocurrency as an investment, gains made from the investment are subject to capital gains tax.
Tax on Mining Crypto New Zealand
Crypto mining is considered a service by the IRD, and any income incurred from crypto mining is taxable according to the latest update on the crypto mining guidelines. And since it is categorised as a service by the IRD, the provisioning of this service also attracts a GST(Goods and Service Tax) in New Zealand.
However, the GST is zero in almost all cases because the service is offered to a blockchain set up outside New Zealand. The tax rate that applies to the income made through mining activities depends on the category in which your mining activities fall.
There are four categories your mining activities might fall into:
- Mining as a hobby
- Mining as a business
- Mining for ordinary income
- Mining as a profit-making scheme
You can look at how the IRD categorises mining activities here.
Taxes on Crypto Staking
The IRD groups crypto mining and crypto staking under the same bucket and considers both a service. The tokens received as a staking reward are considered income and therefore attract income tax in New Zealand.
It’s important to note that the tokens are taxed at the time you receive them as a reward and are also taxed at the time of disposal if you sell them for a profit.
Staking activities, similar to crypto mining, may be viewed by the IRD as a profit-making venture, a business operation, a source of ordinary income, or simply a leisure activity. If deemed a hobby by the IRD, your staking rewards and any future sales profits will be exempt from taxation. However, it's important to note that the criteria for classifying an operation as a hobby are stringent.
Taxes on Buying and Selling Crypto
Buying crypto with fiat currency is not a taxable event, according to the IRD. Crypto assets do not attract tax liabilities unless they’re disposed of. Any sale, trade, exchange, or transfer of a cryptocurrency, as well as the conversion of crypto to fiat currency, is considered disposal and may be subject to capital gains tax. The tax treatment of crypto assets may vary based on the specific circumstances of each case.
So let’s say you swap ETH for BTC. This event is taxable because you have disposed of your BTC holdings. To calculate the amount you owe taxes on, you need to first identify your cost basis(the cost incurred to acquire an asset) from back when you bought these ETH tokens and then subtract it from the price of BTC at the time of acquisition. The difference between these two assets is what you pay taxes on.
People often assume that the only way to attract tax obligations is by selling their assets, and that leads to underreporting on tax reports and unsolicited legal complications for people.
Crypto Gifts and Donation Taxes
Gifting crypto is a taxable event in New Zealand. If the value of the gifted assets has appreciated since the acquisition, you are required to pay income tax on the appreciated value. The person receiving the gifts is not liable to pay any taxes. However, any gains incurred by disposing of the assets are considered income and taxed accordingly.
There’s no specific guidance on how crypto donations are taxed in New Zealand. However, donations in general are tax deductible and you can claim a donation credit of up to 1/3d of the donated value given that you’ve made a taxable income during the tax year.
Crypto Margin Trading, Futures and CFDs
Understanding cryptocurrency futures and margin trading taxes in New Zealand is challenging as there is no regulatory framework. The best approach is to study how other countries handle these transactions and seek the advice of a tax professional. A prudent step as a trader or investor would be to Consult with a tax advisor if you’re unsure about reporting taxes.
Exchanges trading futures contracts keep a record of your realized profits and losses (P&L) in the settlement currency, usually USD, USDT or BTC. If you score a win of $1000, your account will reflect the victory and be taxed as income. On the flip side, if you incur a loss, it'll be deducted from your account and can be used to balance out other gains. Essentially, you'll only be taxed on the net gains from your cryptocurrency futures trading endeavours in a given financial year.
ICO Taxes
ICOs are special events that allow investors to acquire tokens from unreleased projects in exchange for mainstream tokens like BTC and ETH. They’re similar to IPOs in traditional markets.
While the IRD has not issued specific guidelines for individuals participating in Initial Coin Offerings (ICOs), it is reasonable to assume that ICOs are treated similarly to crypto-to-crypto trade for tax purposes. In this context, participating in an ICO involves sending cryptocurrency in exchange for tokens from a new project. The general principle is to consider the transaction as if you sold your crypto for the value of the ICO token in the local currency. The cryptocurrency you send is subject to personal income tax, and the received token inherits its cost basis.
DAO Taxes
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. DAOs are new-age institutions that aim to democratise decision-making and allow people to have a say in decisions that directly affect them. DAOs are often referred to as the soul of Web3 and enable members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
The IRD is yet to release guidelines on the taxation of income received from DAOs. However, it’s reasonable to assume that income from DAOs will be treated as regular income for tax purposes.
NFT Taxes New Zealand
According to the IRD, NFTs are similar to crypto assets because they are built on the same technology and exist on distributed ledgers. However, they’re not the same as they are unique and non-fungible.
NFTs are considered a service for GST purposes. According to the IRD:
“NFTs are classified as a service for GST. Selling NFTs is subject to GST so you need to register for GST if you sell more than $60,000 worth of NFTs in 12 months. If the NFTs are sold to people outside of New Zealand the sales are zero-rated for GST purposes.”
Also, some smart contracts governing the sale and transfer of NFTs are encoded so that every time the NFTs are sold in an open market, the creator receives royalties. These royalties are considered income for tax purposes and are subjected to capital gains tax.
As per the IRD guidelines, you’ll have income tax liabilities on the sale of NFTs if:
- your business creates NFTs
- you buy and sell NFTs to make a profit
- you acquired NFTs for disposal.
NFTs offer a unique advantage over crypto assets, as they can be not only used but also enjoyed. If you purchase NFTs for personal use, you won't have to pay any taxes when you dispose of them. However, if you acquire NFTs as an investment, it's important to have clear documentation showing your intentions at purchase.
DeFi Crypto Taxes New Zealand
In New Zealand, the tax treatment of DeFi transactions is determined by the nature of the transaction and the individual's circumstances. DeFi transactions, like any other investment, may be subject to income tax, capital gains tax, or goods and services tax (GST) depending on the specific circumstances of the transaction.
Income tax may apply to the profits earned from DeFi transactions, and capital gains tax may apply to the gains made from disposing of DeFi assets. GST may apply to DeFi transactions involving the supply of goods or services.
When to report Crypto Taxes in New Zealand?
In New Zealand, the tax year stretches from April 1st to the following March 31st. So, if you're compiling your tax return for the 2021/2022 fiscal year, ensure submitting it by July 7th, 2022. It's worth keeping in mind that if you submit any filings past the deadline, it could result in fines and additional charges.
How to file crypto taxes in New Zealand?
In New Zealand, you can file your cryptocurrency taxes through the Inland Revenue Department (IRD). The IRD requires that you declare all income, including income from cryptocurrency transactions, on your tax return.
There are two ways you can file crypto taxes in New Zealand:
- Using the online portal myIR
- Using physical forms
People usually prefer the online portal over physical forms as it is easy to track and edit.
What crypto records will the IRD want?
The IRD has released specific guidelines regarding record-keeping for taxpayers. You might need the following records when filing your tax returns:
- Name of the asset involved in transactions
- Date of the transaction
- Type of transaction (acquisition, disposal, swap, etc.,)
- Quantity of tokens
- The value of the cryptocurrency in NZD at the time of the transaction
- Total units of each cryptocurrency held at the beginning and end of the year
- Exchange records and other relevant statements
- Wallet addresses of your digital wallets
In the event of an audit by the IRD, it's crucial to have detailed records of all your cryptocurrency transactions on hand. As per current tax regulations, these records must be kept for at least seven years, even if you no longer possess any cryptocurrency. Failing to produce these records during an audit can result in consequences.
How to Avoid Crypto Taxes in New Zealand
Although there’s no legal way to avoid crypto taxes entirely, you can employ some strategies to lower your tax bill in New Zealand without getting into trouble.
- Transaction fees and gas fees paid when buying crypto assets are deductible costs that can be used to offset gains and reduce tax obligations. Despite appearing minimal individually, these fees can accumulate to a substantial amount over time.
- Crypto losses can be offset against capital gains, leading to tax deductions. Keep detailed records of losses and report them to the IRD for eligibility.
- Donations in general are tax deductible in New Zealand and you can claim 1/3rd of your donation amount as a tax credit, given that you’ve made a taxable gain in the tax year.
FAQs
1. What happens if you don’t report cryptocurrency on your tax return?
If you don't report cryptocurrency on your crypto taxes in New Zealand, it can result in penalties and fines from the Inland Revenue Department (IRD). The IRD can assess tax liabilities and issue fines for non-compliance, and if the non-compliance is found to be intentional, there could even be criminal charges brought against the individual. It's important to accurately report all income, including from cryptocurrency, to avoid these consequences.
2. How to file crypto taxes with the IRD?
There are two ways you can file crypto taxes in New Zealand:
- Using the online portal myIR
- Using physical forms
People usually prefer the online portal over physical forms as it is easy to track and edit.
3. Is Crypto Taxable in New Zealand?
Yes, crypto transactions are taxable in New Zealand. Cryptocurrency gains are treated as taxable income and subject to income tax. Moreover, transactions including buying and selling, are subject to goods and services tax (GST).
4. Is cryptocurrency legal in New Zealand?
Yes, cryptocurrency is legal in New Zealand. The New Zealand government has taken a relatively relaxed approach to the regulation of cryptocurrencies, and there are currently no specific laws in place that govern the use of cryptocurrencies.
However, the Reserve Bank of New Zealand and the Financial Markets Authority have issued warnings to investors about the risks associated with investing in cryptocurrencies. Additionally, the Inland Revenue Department (IRD) has issued guidelines on the tax treatment of cryptocurrencies, which requires individuals to report any income derived from cryptocurrencies as taxable income.
All content on Kryptos serves general informational purposes only. It's not intended to replace any professional advice from licensed accountants, attorneys, or certified financial and tax professionals. The information is completed to the best of our knowledge and we at Kryptos do not claim either correctness or accuracy of the same. Before taking any tax position / stance, you should always consider seeking independent legal, financial, taxation or other advice from the professionals. Kryptos is not liable for any loss caused from the use of, or by placing reliance on, the information on this website. Kryptos disclaims any responsibility for the accuracy or adequacy of any positions taken by you in your tax returns. Thank you for being part of our community, and we're excited to continue guiding you on your crypto journey!
