Around one in five Kiwis is either invested in cryptocurrency or plans to invest, according to a survey by the Financial Services Council. With so many of us jumping into cryptoassets, it’s helpful to understand what our tax obligations are.
Last year Inland Revenue updated its guidance on how these assets are taxed; the IR treats cryptos as a kind of digital property, rather than like it would a traditional currency. You can read more about it here, and some of the basic information is summarised below:
When do you need to pay tax on cryptocurrencies?
When you buy or mine cryptocurrencies, there is no tax to pay. And while you hold cryptocurrencies, there is no tax to pay.
However, when you sell your cryptocurrency, you will likely need to pay income tax on any profit that you make. Tax needs to be paid if you bought your cryptoassets to sell or exchange, or if you are using them to carry on a profit-making scheme.
You also need to pay tax if the Inland Revenue feels you meet the criteria for trading in cryptoassets.
When can you sell cryptocurrencies without paying tax on any profits?
In theory, you would not have to pay tax on your profits if you did not buy your cryptocurrency with the intent to sell or exchange it later or make money from it. This is likely to be very difficult to prove. It might apply if, for instance, you inherited the cryptocurrency.
If you want to get rid of your cryptocurrency without paying income tax on the profits, you could spend it instead of selling it.
What if you sell at a loss?
If you sell your cryptocurrency at a loss, you may be able to claim the loss. To do so, you need to demonstrate that if you had made a profit, you would have been taxed on it.
How we can help
We can help you work out the potential tax you’ll pay on the sale of cryptocurrencies or make a claim if you sell at a loss. Give us a call or email us – we’d love to chat.