- Is cryptocurrency ‘property’?
- Visibility for regulators
- The place of cryptocurrencies in NZ
Written by: Jolayne Trim, Senior Tax Advocate, Chartered Accountants ANZ
Cryptocurrency is not currency as we know it. No physical notes or coins exist. For most cryptocurrencies, there is no central agency controlling supply and regulation. We use the term “cryptocurrency” to mean all types of crypto-assets and digital assets that use cryptography and are designed to work as a medium of exchange using blockchain. This would include digital tokens and other digital financial assets.
In October we discussed some tax consequence of cryptocurrency. But of course – there are some much wider implications. The first is regulation. The Financial Markets Authority (FMA) has done an excellent job of spelling out how cryptocurrencies are to be regulated in New Zealand. If you or your client are planning an ICO (Initial Coin Offering), we recommend you check out the FMA’s excellent website.
But there are still questions left unanswered.
FMA Cryptocurrency resources
Cryptocurrency / Cryptoasset servicesFind out more
Is cryptocurrency “property”?
A recent New Zealand High Court case - Ruscoe v Cryptopia Ltd - looked at whether cryptocurrency assets were “property”.
Cryptopia was a cryptocurrency exchange firm that went into liquidation (following a hack). It still held cryptocurrency when it went into liquidation. The liquidators of Cryptopia applied to the High Court to ask whether cryptocurrency was “property”. The Court found that it was. The Court said, citing a British case from 1965, that property was something that:
- is definable
- is identifiable by third parties
- is capable of assumption by third parties, and
- has some degree of permanence or stability.
and that cryptocurrency met these criteria.
Interestingly, the Court held that the cryptocurrency was “property” for the purposes of the Companies Act (1993), but probably for other purposes as well. It will be interesting to see if this has any further implications for New Zealand’s taxing and regulation of cryptocurrency.
High Court of New Zealand Decisions
Ruscoe v Cryptopia Limited (in liquidation)  NZHC 728 (8 April 2020)Read case
Central banking / financial markets / monetary policy
The rise of cryptocurrency also raises issues for central bank regulation.
The Reserve Bank reported in May that people were holding more cash during the Covid-19 lockdowns. This may be to give a feeling of security, particularly when there are fewer bank branches and a decreasing number of ATMs. In the meantime, we wait to hear if that cash has now made its way back into the economy – or if it is still stuffed under mattresses around New Zealand.
One thing the Reserve Bank has not published – and may not be able to monitor – is whether holdings in cryptocurrency also went up during that time. The issue of visibility and reporting is a key concern for regulators. Like cash, cryptocurrency does not require a bank branch or ATM. Holding cryptocurrency may also give New Zealanders a feeling of security during uncertain times. After all, The Cryptopia High Court decision held that they have “a degree of permanence and stability”.
Financial Stability Report
Read the Reserve Bank Financial Stability Report.Learn more
Hedging & Superannuation
However, cryptocurrency values are notoriously volatile. There are many cryptocurrency hedge and derivative offerings in the market that may allow you to offset any gains or losses. You or your client will need to track these too, in order to ensure a complete record for tax purposes.
Many New Zealanders save for their retirement through Kiwisaver. If you would like to invest in cryptocurrencies, you could look at your current Kiwisaver fund’s investment profile to check whether it has invested in any. Or ask your provider. Generally speaking though, if you or your client would like to invest in cryptocurrency, you will need to do so outside of the Kiwisaver scheme.
Cryptocurrency record keeping for tax purposes
See our earlier article for a further discussion on record keeping requirements for tax purposes. It’s a good idea to keep independent records in a spreadsheet or other accounting programme.Find out more
A national cryptocurrency?
The Reserve Bank has also released a paper considering whether to issue a cryptocurrency. While these are just initial considerations it’s worth noting that other countries such as China have made similar announcements.
A central-bank issued cryptocurrency would be very different from other sorts of cryptocurrency – most importantly, because there would be centralised control. There are pros and cons to this. It may also be of interest to tax authorities, as it may increase accountability in the “gig economy” and “cash economy”.
Like taxation, regulation of cryptocurrency is advancing but not as fast as the technology itself. In the meantime, as people lose their desire to store their wealth under a mattress, there may be a place for it in New Zealand financial markets. It remains to be seen whether that place is as a currency, an investment or something else.
Pros and Cons of issuing a central bank digital currency
The Reserve bank considers the pros and cons of issuing a NZ digital currency.Read more