Imagine this, you’re casually scrolling through your phone when you stumble upon a NZ Herald article headline that reads, “Crypto crackdown: IRD says it can track down overseas data and crypto assets.” 

For many, this might come as no surprise, but it certainly caught the attention of cryptocurrency holders in New Zealand. 

Inland Revenue has long stated that cryptocurrency is often held for resale or trade, which means any gains on disposal are often taxable. “Disposal” of a cryptoasset has a wide definition, including exchanging one crypto asset for another, or using it to purchase goods or services.

A Regulatory Impact Statement issued by Inland Revenue in May 2024 underscores this stance. “In almost all cases, the disposal of cryptoassets is taxable in New Zealand. Disposals include selling cryptoassets for money, exchanging one cryptoasset for another type of cryptoasset and using cryptoassets to pay for goods or services.” This can often result in an unexpected tax bill for the person who disposed of the cryptoasset.

The OECD has developed a global framework for reporting and exchanging information with respect to cryptoassets. It’s been developed to make sure that tax administrations around the world have enough information to enforce their domestic tax laws as they apply to cryptoassets.  

The framework, sometimes called the Crypto-Asset Reporting Framework, or CARF, provides for the automatic exchange of tax-relevant information on crypto-assets. Forty-eight countries and jurisdictions intend to implement the framework by 2027, including Australia.

Although New Zealand is not a member of the G20 or one of the countries in the original list of those looking to implement it is a member of the OECD. The New Zealand budget documents from this year allocate some funding to implementation of the crypto-asset regulatory framework initiative. The documents say that the initiative provides funding for the development and administration of the Crypto-asset Reporting Framework and shows the increased tax revenue from implementation. 

As a result, Inland Revenue is likely to have more detailed information about New Zealanders’ cryptocurrency activities in future. A media statement released by Inland Revenue on 11 July 2024 confirms this, saying:

“We know there are around 7 million cryptoasset transactions, worth nearly $8 billion, by 227,000 New Zealanders. We’re seeing significant under-reporting of income from some of these people. Inland Revenue will be progressively approaching these traders to let them know some of the information we have on their business and giving them a final chance to report their income.” 

If you or your clients have cryptocurrency, it’s best to keep really good records of holdings and trades as the holder of the assets may owe taxes even if they have not generated any cash from these activities.

People use cryptocurrency for various reasons, often viewing it as a more secure alternative to traditional banking systems for transferring large amounts overseas. The Reserve Bank is now considering whether to issue a central bank cryptocurrency. This is an ongoing project as relevant issues require thorough consideration. This means any issue date, or decision, is likely to be several years away. For more details, you can read about their considerations here. 

Inland Revenue has already made some changes to the tax rules to deal with cryptocurrencies. As part of this project, Inland Revenue and the Reserve Bank could consider whether any more changes are needed to make sure the tax rules are practical and workable as cryptocurrency becomes a bigger part of life in New Zealand.