Inland Revenue have undertaken work on a number of cryptocurrency items this year, and this item ‘PUB00344: Income tax – application of the employee share scheme rules to employer issued crypto-assets provided to an employee’ is the latest in this series. This draft ruling considered the income tax treatment of employer-issued crypto-assets provided to employees and covers the situation where a crypto-asset issued by the employer is a “share” in the employer.
CA ANZ have reviewed the analysis and agree with the conclusion reached that cryptocurrency should be considered a “share” in a company where it represents an interest in the capital of a company.
The draft item concludes that some cryptocurrencies with specific features will be “shares” for the purposes of section YA 1 and, thus for the purposes of section CE 7, which deals with employee share schemes. However, cryptocurrency may not be a “share” for the purposes of sections CW 26C and CW 26F which deal with exempt Employee Share Schemes (although we acknowledge that this is not within the scope of the ruling). Thus, it is likely that cryptocurrency will be subject to one set of ESS rules but not the other.
While this conclusion is not intuitive, we agree with the technical conclusion reached.