Cryptocurrencies like Bitcoin, Ethereum, and Dogecoin are legal to own, trade and exchange in New Zealand (NZ). However, citizens may not know that buying Bitcoin and other digital currencies will result in tax obligations. Virtual assets are a relatively new phenomenon, so navigating how they’re taxed can be quite confronting, especially for newcomers. This guide will explain the requirements for crypto tax in New Zealand.
Do You Have To Pay Crypto Tax In New Zealand?
Apart from any legal exemptions, most crypto investors (individuals, businesses, or professional traders) must declare their financial activities to the Inland Revenue (IR) department of New Zealand. The specific tax treatment will vary depending on whether the resident is considered a professional business or an independent investor. The agency requires many popular exchanges in NZ to disclose the financial dealings of tax residents. This includes any gains they have made, personal details, and the overall value of their portfolio.
Tax Definition Of Cryptocurrency In New Zealand
The first step to understanding how crypto is taxed by Inland Revenue (IRD), New Zealand’s tax agency, is to see how the asset class is defined. After a few years of digital currencies sitting in a legal grey area, in 2017, the IRD clarified its stance on cryptocurrency. Cryptocurrency is not classified as a foreign currency but as a property. This definition includes virtual assets like non-fungible tokens (NFTs) too.
From the IRD website:
“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.”
Therefore, it doesn’t matter which cryptocurrency is used. Crypto assets are taxed on how they are used by the entity, rather than the specific blockchain they originate from. As an example, imagine someone sold $500 worth of USD Tether for a profit of $100. This would still be taxed as a crypto, not a foreign currency – even though it’s pegged to the U.S. Dollar.
What Crypto Activities Are Taxable?
Crypto assets are classified as "property" in New Zealand. Anytime a “disposal event” occurs, it is usually subject to a tax obligation. Disposal essentially entails getting rid of a cryptocurrency through means like:
- Selling crypto for NZD or another digital asset
- Exchanging crypto for certain goods and services
- Gifting crypto assets to another person
- Receiving crypto as income instead of fiat currency
- Getting crypto rewards through mining, staking, airdrops, etc.
- Depositing crypto to certain lending platforms
Any time cryptocurrency leaves an investor’s ownership, it will likely result in a tax obligation. The IRD has left a little wriggle room in its definition of a taxable scenario. Crypto assets will be taxed when the purpose of their acquisition is “to sell or exchange” them. So, one could argue a long-term cryptocurrency staking strategy has no intention to dispose of the asset. However, this particular “loophole” is incredibly murky and unlikely to work.
Is There Capital Gains Tax on Crypto?
It is vital to understand that New Zealand does not have a Capital Gains Tax for property, equity, stocks, and other assets (including crypto assets). This conflicts with most other nations – like the U.S., Australia and England – that use a CGT for crypto taxations. Instead, cryptocurrency is taxed at the income tax rate.
How Much Crypto Tax Will I Need To Pay?
The amount of tax owed to the IRD will vary dramatically based on a few factors. Primarily:
- Are you buying/selling crypto as a business?
- Are you a New Zealand tax resident?
- What is your annual income?
As cryptocurrency gains are taxed as income, the marginal rate will depend on the individual’s tax bracket. New Zealand’s tax brackets are shown in the table below (at the time of writing):
|Income Bracket (NZD)||Tax Rate|
|Up to $14,000||10.5%|
Therefore, if an investor earned NZD $95,000 from their regular job, crypto gains would be taxed at a rate of 33%. Businesses are taxed at different rates. So, those earning, trading or otherwise conducting cryptocurrency practices professionally will have to refer to the IRD’s business tax.
How To Calculate The Amount Of Tax Owed?
Figuring out the specific tax owed for cryptocurrency transactions can be overwhelming. This is especially true for investors who frequently trade small amounts of digital currencies. It is not uncommon for professional and experienced investors to rack up hundreds of disposal events every single day.
For very small-time traders, the formula is rather simple. First, calculate the year’s capital gains (profits from crypto disposal — losses from crypto disposal). Next, work out the income tax bracket you fall into.
The reality isn’t as simple as the formula. Traders will need to figure out their capital gains in NZD, which means converting crypto and foreign currencies at the time of disposal into NZD. Consulting a financial professional when calculating crypto taxes is always a good idea.
Do I Have To Report Crypto Losses To The IRD?
All disposal (selling/exchange) events must be submitted on an end-of-financial-year tax report. This applies regardless of whether the investor has accrued a capital gain or loss on the trade.
It would be in the investor’s best interests to report capital losses even if it wasn’t necessary. This is because they can be used to offset profits from other trades, reducing tax obligations for that financial year. Losses from activities such as mining (e.g., rig and electricity costs) are also tax-deductible.
For example, if someone buys Ethereum for NZD $500 and sold it for NZD $1,000, the profits ($500) would normally be taxed at the normal income rate. However, suppose that same financial year, they purchased Bitcoin for NZD $1,000 and sold it for NZD $500. They could use those capital losses ($500) to offset their tax obligations completely.
Can I Avoid Paying Crypto Taxes In New Zealand?
As the IRD has continued clamping those flaunting their crypto tax obligations in New Zealand, it is now almost impossible to get away with tax evasion. Cryptocurrency exchanges regulated in New Zealand (such as Swyftx and Binance) are required to hand over the financial details of their users to the IRD.
However, there are ways to minimize your tax obligations. In certain circumstances (with the help of a tax professional), this can occasionally bring taxes owed to the IRD down to zero. The most common method of accomplishing this is through tax offsets like capital losses.
Do I Need To Record Each Crypto Asset?
It is always a good idea to keep a tight record of every crypto transaction. This includes those that are purchased and stored in wallets. Even if you have no plan of selling the digital currency for multiple years, it can become excruciating to track down the asset’s value in NZD later on. It’s worth noting that crypto-asset purchases made with fiat currency are not subject to any form of taxation. This isn’t limited to NZD and includes USD, AUD, etc.
Generally, the following data should be documented and stored:
- Transaction date
- Transaction type (buy, sell or exchange?)
- Cryptocurrency being transacted
- Any additional income (staking, mining, etc.)
- The total amount of crypto purchased/sold (including fractional amounts of assets like Bitcoin)
- Cryptocurrency value in NZD at the time of transaction
- Any necessary bank/exchange/crypto wallet transaction records
Do I Need To Pay Tax On Crypto-To-Crypto Trades?
Yes, swapping one crypto for another will incur a taxable event in New Zealand. This includes trading, for example, Bitcoin to a stablecoin like USDC, even though it’s an asset pegged to a fiat currency. Any profits made on Bitcoin between the time of purchase and sale would be taxable in this instance. If a gain were also made by selling the USDC to NZD, this would incur another tax obligation.
Do I Need To Pay Tax On Non-Trading Crypto Earnings?
As the cryptocurrency and decentralized finance sector evolved, investors have access to new and exciting ways to expand their income generation. Some of the more popular options include:
- Staking (on-chain)
- Savings accounts (like Nexo)
- Yield farming (algorithmically or manually)
- Liquidity mining
- Mining pools
- Bitcoin or other PoW mining
Profits from these activities are taxed similarly to capital gains from trading crypto. If any of these activities are performed as a business, they will be taxed as such. The specific tax guidelines for crypto-earning activities are a little confusing. Basically, if you are just “trying out” mining for a day or two, the profits earned will not be subject to tax. However, if it is performed as a “profit-making scheme”, it is taxable. For more information, read the IRD’s guide on mining cryptocurrencies.
Best Crypto Tax Calculator For New Zealand?
Cryptocurrency tax calculators can make fulfilling tax obligations easy, as they do most of the work for you. The same result can be accomplished by using a well-designed spreadsheet with up-to-date formulas. The benefit of tax software is the automatically generated tax reports based on the data recorded from the section above. Koinly is one of the most popular crypto tax software in the market for this purpose and is compatible with New Zealand residents.
Best of all, some exchanges have partnered with certain tax software’s APIs to allow seamless integration. This means traders don’t need to manually input the data; the exchange will directly feed transaction records into the tax reporting software. This is a fantastic time-saver, although it’s always worth double-checking the information.
Navigating the world of tax and cryptocurrency can be incredibly confusing. Consider that fiat currencies have been around for a thousand years (and coins even longer), and governments are still trying to optimize the regulations surrounding them. Crypto assets are practically a baby compared to these currencies, so it’s easy to see why they sit in such a legal grey area.
However, many tax agencies are finally starting to clear the air with digital currencies, making it easier on investors. Hopefully, this article will have helped fit some pieces of the puzzle together to understand how New Zealand treats crypto taxes. That said, the specific tax recommendations are constantly changing, though, so the best course of action for higher-volume investors is to consult an accountant.
Disclaimer: Please do not rely on the general information herein as fact, we are not tax experts or financial advisors/planners. You should always seek your own financial, legal and tax advice from a professional.