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New Zealand: Tax Authority Rules That Salaries Paid in Cryptoassets Are Subject to Tax

(Sept. 5, 2019) On June 27, 2019, New Zealand’s tax authority, the Inland Revenue Department (IRD), issued a binding public ruling (BR Pub 19/01) applicable to the payment of remuneration to employees using “crypto-assets.” A further ruling (BR Pub 19/02) relates to the use of crypto-assets to pay employee bonuses. The rulings were to come into effect on September 1, 2019, and are valid for a three-year period.

The rulings were publicized in an August 2019 volume of the IRD’s Tax Information Bulletin. Various news media and websites dedicated to cryptocurrency information subsequently reported on the rulings, with some stating that New Zealand was the first country in the world to legalize salary payments in cryptocurrency. However, some noted that employees were already receiving cryptocurrency payments:

Robert Kirkby, lecturer at Victoria University of Wellington’s school of economics, says the formal ruling . . . came after a request for advice on how to fill out tax returns when being paid in cryptocurrency. In other words, people in the country were already being paid this way.

The ruling with respect to salaries paid in crypto-assets applies to payments that

• are for services performed by the employee under an employment agreement;
• are for a fixed amount; and
• form a regular part of the employee’s remuneration.

The crypto-assets being paid must not be subject to a “lock-up” period and must be able to be converted directly into a fiat currency (on an exchange), and either

– a significant purpose of the crypto-asset is to function like a currency; or
– the value of the crypto-asset is pegged to one or more fiat currencies.

The ruling does not apply to self-employed taxpayers or to circumstances where crypto-assets are provided as part of a “share” arrangement for income tax purposes.

Where an arrangement has the above features, the IRD ruled that “[t]he crypto-asset payments are “PAYE income payments” under s RD 3 and are subject to the PAYE rules.” PAYE stands for “pay as you earn” and refers to the tax deducted from employee salaries and wages by employers. It is governed by subpart RD of part B of the Income Tax Act 2007.

The ruling with respect to bonuses also states that the PAYE rules apply to incentive or bonus payments made to employees using crypto-assets with the same features set out above.

Both rulings are accompanied by non-binding commentaries that discuss in detail when crypto-asset payments will be subject to PAYE and the implications of this for other areas, such as student loan repayments and payments to retirement savings. The rulings also clarify that “[p]ayments of crypto-assets not subject to PAYE will be fringe benefits and subject to FBT [fringe benefits tax].”