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Updated guidance on the tax treatment of cryptoassets in New Zealand, published by Inland Revenue (IR) in September 2020, explains that the income gained from selling, trading, or exchanging cryptoassets is taxable if the person’s purpose for acquiring the cryptoassets was disposal, or if the person is engaged in trading cryptoassets, or if the cryptoassets were part of a “profit-making scheme.” There is no broad capital gains tax in New Zealand. Trading stock tax rules apply to cryptoassets held by cryptoasset businesses, while businesses that use cryptoassets must include them as part of their income. The guidance includes reference to cryptoassets received through mining, staking, airdrops, and forks, with similar consideration given to the purpose of the activity, and whether it was part of a business or profit-making scheme. Staking rewards may be taxable upon receipt, and income earned on their disposal may also be taxable, depending on the circumstances.

In December 2020, IR published a detailed issues paper regarding the tax treatment of cryptoassets received as a result of airdrops and hard forks. The paper discusses the agency’s initial views on the application of existing tax law with respect to both the receipt and disposal of the cryptoassets received in these ways, including particular issues that arise. It seeks public comment on these views and asks whether changes to the law are needed.

I. Introduction

Inland Revenue (IR), the New Zealand tax agency, published updated guidance on the tax treatment of cryptocurrencies (generally referred to as “cryptoassets”) in September 2020.[1] Other recent activities in this area include four new rulings issued in 2019 regarding the provision of cryptoassets to employees.[2] In addition, IR officials published a paper on goods and services tax (GST) policy issues in February 2020, which included a chapter on the GST treatment of cryptocurrencies.[3] Most recently, on December 7, 2020, the IR Tax Counsel Office published an issues paper on the tax treatment of cryptoassets received from blockchain forks and airdrops, in which it presented its initial views on the application of existing law and sought public comments on these views and on whether any law changes are needed.[4]

A. General Application of Income Tax Rules

The IR cryptoasset guidance provides an overview of the different types of cryptoassets and sets out how common cryptoasset transactions performed by individuals and businesses are taxed, as well as providing information on completing tax returns and maintaining records involving cryptoassets.

Upon the release of the updated guidance, IR’s spokesperson explained that

[p]eople can buy, sell, and exchange cryptoassets; provide goods or services in exchange for them; mine cryptoassets; and earn staking rewards (or “crypto interest”) among other things[.] . . .

There are no special tax rules for cryptoassets in New Zealand. The guidance clarifies how ordinary income tax rules apply to cryptoassets to help people understand their tax obligations.

Essentially, cryptoassets are treated as a form of property for tax purposes. What people make from selling, trading or exchanging crypto-assets is taxable.[5]

The New Zealand tax system does not include a broad capital gains tax. Instead, “taxes on capital gains are payable only if gains are generated from assets held on revenue account.”[6]  

The IR guidance includes information on calculating cryptoasset income and expenses. In terms of income, it explains that this might come from

  • mining cryptoassets (such as block rewards and transaction fees, including income from a mining pool)
  • staking cryptoassets or using a staking-as-a-service provider
  • lending cryptoassets to another person (including crypto ‘interest’)
  • selling or exchanging cryptoassets (including mining rewards)
  • getting paid in cryptoassets for goods or services you provide.[7]

Usually, “these amounts are income in the income year they are received.”[8] In addition, if cryptoassets are held as trading stock, a person’s income includes the value of any cryptoassets held as trading stock at the end of the income year.[9]

In terms of expenses, the types that can be deducted from cryptoasset income depend on whether or not a person is in business. However, the guidance lists expenses that can be generally deducted, including the cost of the cryptoassets, depreciation of relevant capital assets, interest charged on money borrowed to buy cryptoassets (if any profit from their sale is taxable), and other expenses related to the cryptoasset activities. In addition, if cryptoassets are held as trading stock, a person’s expenses also include the opening value of the trading stock. The guidance also provides information on methods for determining the cost of cryptoassets that are not trading stock, and on calculating the cost of cryptoassets received by a miner or as payment.[10]

B.  Individual Income Tax Rules

The income tax rules are generally applicable to the amounts that an individual gets from “selling, trading or exchanging cryptoassets,” with a person needing to pay tax (or able to claim losses) if he or she is

  • acquiring cryptoassets for the purpose of disposal (for example to sell or exchange)
  • trading in cryptoassets
  • using cryptoassets for a profit-making scheme.[11]

Disposal includes selling or exchanging cryptoassets, using cryptoassets to pay for goods or services, and giving away cryptoassets to another person. IR considers a person’s purpose (or purposes) for acquiring cryptoassets at the time they are acquired.[12] This means that whatever the individual says is the purpose must be supported by what he or she actually does and the surrounding circumstances, including the

  • nature of the asset (for example, does it provide an income stream or any other benefits while being held)
  • circumstances of the purchase
  • number of similar transactions
  • length of time you hold the asset
  • circumstances of the use and disposal of the asset.[13]

The IR guidance provides information on determining whether an individual is in the business of trading in cryptoassets (i.e., buying and selling cryptoassets to make a profit). This involves looking at the frequency of a person’s transactions and how much time or effort is spent on buying, selling, or exchanging cryptoassets, as well as other considerations. IR states that if a person is in the business of trading in cryptoassets, the cryptoassets “are likely to be trading stock.”[14]

In terms of using cryptoassets for a “profit-making scheme,” a cryptoasset activity will be considered part of such a scheme if “there is a coherent plan of action (a scheme)” and the individual enters into the plan for the purpose of making a profit.[15]

Further guidance on acquiring cryptoassets through mining activities is outlined below in Part II of this report.

C. Business Income Tax Rules

The IR guidance includes information for cryptoasset businesses, as well as on using cryptoassets for business transactions and providing cryptoassets to employees.

As indicated above, a cryptoasset business, such as one that engages in mining or trading or has an exchange business, must pay income tax under the trading stock rules.[16]

A business that is not a cryptoasset business, but which uses cryptoassets, must account for them in the same way as any other business asset. Where cryptoassets are received as a payment for goods or services, IR considers this a barter transaction and tax is payable on the income, with the value of the cryptoassets calculated in New Zealand dollars at the time of receipt.[17] The amount earned from subsequently selling the cryptoassets is also taxable as business income:

In this case, you can claim a deduction for cost equal to the value of the cryptoassets when you got them. This is the same value you paid tax on when you received the cryptoassets in the barter transaction. This means the income you earned from the barter transaction is not taxed twice.[18]

A business that sells or exchanges cryptoassets, where this is not part of its usual business activity, does not need to include any amounts received in its usual business income. However, such amounts are “generally still taxable,” with tax being payable if the cryptoassets were acquired for the purpose of selling or exchanging them, or as part of a profit-making scheme, as discussed above.[19]

In terms of providing cryptoassets to employees, businesses need to account for PAYE (Pay-As-You-Earn, i.e., withholding tax) or fringe benefit tax, in accordance with the 2019 rulings referred to above.[20]

D. GST Rules

The February 2020 GST issues paper “discusses proposals to exclude cryptocurrencies (crypto-assets) from GST and the financial arrangement rules to ensure these rules do not impose barriers to developing new products, raising capital or investing through crypto-assets.”[21] In terms of GST, it explains that

New Zealand has a broad-based GST system that applies to nearly all goods and services. A service is broadly defined to mean anything which is not goods or money.

GST does not apply to money or financial services, but the existing definitions of money and financial services were not designed with crypto-assets in mind. It is likely that many crypto-assets have a different GST treatment to money or financial services.

When a crypto-asset is traded or sold, the GST treatment may vary depending on the specific facts and features of the crypto-asset and the residency of the buyer and seller. The supply of a crypto-asset could be an exempt financial service, subject to 15% GST, or a zero-rated supply to a non-resident.

In this regard, the current GST rules provide an uncertain and variable GST treatment making, using or investing in crypto-assets less attractive than using money or investing in other financial assets. The variable GST treatment may distort decisions around the type of crypto-assets a business may choose to develop and issue, whether they issue the token in New Zealand or offshore, and what type of tokens New Zealand investors choose to buy or sell.

The final issue is that, because of the complexity of the GST treatment and the limited information available about the specific features of a crypto-asset and the residency of the seller or purchaser, the current GST rules can be difficult to apply or impractical to comply with.[22]

The proposed changes involve developing a broad definition of cryptoassets that captures nearly all those that are used or invested in. This would “then be used to remove crypto-asset from both the GST rules (by making crypto-assets an exempt supply) and the financial arrangement rules (by making a “crypto-asset” a new type of excepted financial arrangement).”[23] The paper notes that the proposed definition would be broader than the definition of “digital currency” in Australia’s GST rules and the proposed definition of “digital payment token” developed in Singapore.[24] The paper then presents and discusses two possible approaches for removing GST on cryptoassets: either “[m]aking all supplies of cryptoassets not subject to GST,” or “[m]aking supplies of cryptoassets to New Zealand residents exempt from GST and supplies to non-residents zero-rated supplies.”[25]

The issues paper emphasizes that, under the proposed changes, cryptoassets “would only be excluded from the GST and financial arrangement rules—they would still be subject to other tax rules,” with cryptoassets being considered property for income tax purposes.[26]

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II. Tax Treatment of Block Rewards

The IR guidance contains references to cryptoassets acquired through mechanisms such as staking, airdrops, and forks. A link in the guidance that further explains what is meant by “acquiring” cryptoassets states that the ways to acquire cryptoassets include

  • buying cryptoassets (such as, through an online exchange, peer-to-peer or from a crypto ATM)
  • mining or staking cryptoassets
  • exchanging one cryptoasset for another type of cryptoasset
  • providing goods or services in exchange for cryptoassets
  • receiving new cryptoassets from a fork of a cryptoasset you hold
  • receiving airdrops
  • earning cryptoassets through cryptoasset lending or ‘staking as a service’ providers
  • participating in an Initial Coin Offering (ICO) or Initial Exchange Offering (IEO).[27]

The guidance on mining cryptoassets and tax covers different consensus models, such as proof of work and proof of stake. It explains that,

[i]n most cases, cryptoassets you get from mining (such as transaction fees and block rewards) are taxable. You may also need to pay income tax on any profit you make if you later sell or exchange your mined cryptoassets.

When you mine cryptoassets, you may have to pay tax because you:

  • are in the business of mining cryptoassets
  • carry on a profit-making scheme
  • earn ordinary income from providing mining services
  • mine cryptoassets for the purpose of disposal (to sell or exchange).[28]

The guidance provides additional information on each of these situations. As explained above, where a person’s cryptoasset mining activity is considered a business, income tax is payable on the profits, including mining rewards when they are received and profits from selling the mining rewards, and the cryptoassets held are likely to be trading stock.[29] A similar approach is taken to taxing mining rewards and profits earned where the mining activity is a profit-making scheme, with all amounts of cryptoassets and money included as income. The guidance states that, “[i]f your profit-making scheme includes proof of stake mining (staking), you may also have to pay income tax on profits from selling your staked cryptoassets.”[30]

Even where mining cryptoassets is not a business or a profit-making scheme, a person may have “ordinary income from providing a service,” and therefore need to pay income tax on the mining rewards upon receipt, as well as paying tax on any profit made from subsequently selling or exchanging the mining rewards if this was the purpose for mining them.[31] This is the case even where the mining activity is a hobby; there will only be rare circumstances where mining income is not taxable, with IR providing an example of a person once spending their spare time mining Bitcoin for the sole purpose of learning how the technology works.[32]

An EY Tax News Update article on the new IR guidance expressed the following views:

The guidance may complicate matters for taxpayers whose cryptoassets are increasingly difficult to classify as a form of “property.” For example, products are available on the market that allow “staking” – holding cryptocurrency to verify transactions and support the network in exchange for a reward. . . .

. . . For taxpayers who earn income from staking, applying this guidance would result in an obligation at the point the reward is received, and at the point of later sale of the underlying staked assets regardless of the nature of their holding. This treatment implies that these investors purchase their assets not for the purpose of income generation from staking, but for the purpose of resale; fundamentally changing the application of the capital/revenue boundary for them.

Officials are faced with a difficult question then—how can they design guidance that accommodates for a constantly evolving set of products and application?

The simple answer is that cryptoassets as a broad category includes a variety of different products with different uses and rights. As a consequence, fitting all of these various cryptoassets within a single pre-existing regime is challenging. To date, Inland Revenue has relied on comparisons to existing products (for example to property or to gold) to draw their legal conclusions. Increasingly, these analogies are becoming strained. This guidance illustrates how incompatible conventional tax rules are with the growing digital economy, and the need for a bespoke set of rules for the industry. Alternatively, rules that are designed more broadly with the digital world in mind would be useful.[33]

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III. Issues Paper on the Treatment of Cryptoassets Received from Hard Forks and Airdrops

IR’s December 2020 issues paper contains detailed discussion about the potential application of different sections of the Income Tax Act 2007 to cryptoassets received as a result of hard forks and airdrops, and about the issues that arise from such application. It covers the potential tax treatment of the received cryptoassets both at the time of receipt and at disposal, including under the provisions on business income (with respect to both cryptoasset businesses and other businesses), profit-making schemes, “income under ordinary concepts,” and on the purpose of disposal, as well as on calculating the cost of such cryptoassets for the purposes of any deductions. It makes initial conclusions with respect to each area.

A. Hard Forks

The initial conclusions regarding the tax treatment of new cryptoassets received via a hard fork at the time of receipt are as follows:

In many cases, the receipt of new cryptoassets from a hard fork will not be income of the recipient.

For cryptoasset businesses such as dealing and mining businesses, the new cryptoassets may be taxable on receipt if they could be said to be received as an ordinary incident of that business. In addition, they are likely to form part of the trading stock of that business.

The receipt of new cryptoassets from a hard fork may also be income if they are received as part of a person’s profit-making undertaking or scheme.[34]

In terms of the tax treatment of the new cryptoassets on disposal, the issues paper concludes as follows:

The tax consequences of disposing of new cryptoassets received from a hard fork depends on the recipient’s individual circumstances.

Amounts derived from the disposal of cryptoassets received from a hard fork would be taxable income of cryptoasset businesses. The amounts would be income as the sale of trading stock in the ordinary course of that business, income from the business under s CB 1 or (for a dealer) income from dealing in personal property under s CB 5.

There may be instances where a disposal of cryptoassets received from a hard fork is part of a profit-making undertaking or scheme. In that event, the disposals may be taxable under s CB 3.

All other disposals could be subject to s CB 4. Issues arise when applying s CB 4 to a disposal of cryptoassets that were received from a hard fork. The issues identified . . . include:

  • Does the purpose for acquiring the new cryptoassets from a hard fork take the same purpose as the original cryptoassets?
  • Is the acquisition of cryptoassets from a hard fork passive, or do the steps taken to get possession involve a person turning their mind to acquiring the cryptoassets?
  • Could the acquisition be compared with acquiring shares or rights under a share rights issue, share subdivision or demerger?
  • When are the new cryptoassets acquired?

On balance, we consider that the better view is the first view set out above, that is that the new cryptoassets take the original purpose of acquisition. However, we acknowledge that these issues are subject to debate. This issues paper seeks your feedback on the issues raised in relation to the application of s CB 4 in particular.[35]

The issues paper also summarizes the treatment of hard forks in Australia, the United Kingdom, the United States, and Singapore.[36]

B. Airdrops

The issues paper sets out the following initial conclusions with respect to the tax treatment of airdropped cryptoassets upon their receipt:

Generally, receipts of airdropped cryptoassets are unlikely to be income of the recipient. Airdropped cryptoassets may be taxable on receipt where they are received by:

  • some cryptoasset businesses (if received as an ordinary incident of the way in which the business earns its income);
  • a person who has an undertaking or scheme to profit from the receipt of airdropped cryptoassets;
  • a person who has provided services and receives airdropped cryptoassets as payment for those services; or
  • a person who receives airdrops on a regular basis, such that they have the hallmarks of income.

As with the previous issue [of cryptoassets received from a hard fork], if airdropped cryptoassets are taxable on receipt, valuation and timing issues may arise.[37]

The initial conclusions regarding the tax treatment of airdropped cryptoassets upon their disposal are as follows:

The tax consequences of disposing of new cryptoassets received from an airdrop depend on the recipient’s individual circumstances.

Generally, the disposal of an airdropped cryptoasset by a cryptoasset business will be the disposal of trading stock in the ordinary course of that business, or will be income derived from the business under s CB 1 (or under s CB 5 for dealers). It is also possible that disposals of airdropped cryptoassets could be part of a profit-making undertaking or scheme.

In most cases, the relevant provision for taxing disposals will be s CB 4. Where a person has not done anything in order to receive an airdrop, similar issues arise as set out for hard forks earlier. That is, if the person has acquired the airdropped cryptoassets passively, then it is arguable that no purpose on acquisition can be established. This may depend on whether taking steps to take possession of an airdropped cryptoasset is sufficient for an acquisition to be considered active. Where the person has performed an action of some sort in order to receive the airdrop, then a purpose on acquisition can be formed.[38]  

As with hard forks, the paper summarizes the treatment of airdropped cryptoassets in other jurisdictions.[39]

C. Cost of Acquisition

The issues paper discusses the determination of the cost of cryptoassets received from a hard fork or airdrop in terms of claiming any deductions under part D of the Income Tax Act 2007, concluding as follows:

We consider that where cryptoassets received from a hard fork or an airdrop are taxable on receipt, no deduction is allowed under s DA 1 as no expenditure is generally incurred. We also consider that no deduction is generally allowed on a disposal under s DB 23, as there was no cost of that property. This is because the person has not paid or expended anything to acquire those cryptoassets (other than any transaction fees where applicable).

We consider that, where a person is taxed twice (on receipt and again on disposal), a cost should, at the time of disposal, be attributed to the cryptoasset to avoid double taxation on the original value received.[40]

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Prepared by Kelly Buchanan
Foreign Legal Specialist
January 2021


[1] Cryptoassets, Inland Revenue, https://perma.cc/HDA4-K7MM. See also Inland Revenue Guidance on Cryptoassets, [email protected], Deloitte (Nov. 5, 2020), https://perma.cc/4URY-XD9M.

[2] See Kelly Buchanan, New Zealand: Tax Authority Rules That Salaries Paid in Cryptoassets Are Subject to Tax, Global Legal Monitor, Law Library of Congress (Sept. 5, 2019), https://perma.cc/9LJR-GSU8. The 2019 rulings are available on Inland Revenue’s Tax Technical website, at https://perma.cc/DH4D-G6N5. See also Providing Cryptoassets to Employees, Inland Revenue, https://perma.cc/3S8S-CD3Y.

[3] Inland Revenue, GST Policy Issues: An Officials’ Issues Paper (Feb. 2020), https://perma.cc/2LXP-MTRU.

[4] Inland Revenue, Tax Counsel Office, Income Tax—Tax Treatment of Cryptoassets Received from Blockchain Forks and Airdrops (Issues Paper #14, Dec. 7, 2020), https://perma.cc/UU5R-ZN8J.

[5] Press Release, Inland Revenue, New Inland Revenue Guidance on Cryptoassets (Sept. 7, 2020), https://perma.cc/5E86-KZZ2.

[6] New Zealand Introduces New Tax Guidance for Cryptoassets, Tax News Update, EY (Dec. 1, 2020), https://perma.cc/KD2C-VWJN.

[7] Working Out Your Cryptoasset Income and Expenses, Inland Revenue, https://perma.cc/YEX4-UPJ5.

[8] Id.

[9] Id. “Trading stock” means “property that a person who owns or carries on a business has for the purpose of selling or exchanging in the ordinary course of the business.” Income Tax Act 2007 s EB 2(1), https://perma.cc/3248-KNWH.

[10] Working Out Your Cryptoasset Income and Expenses, supra note 7.

[11] Buying and Selling Cryptoassets, Inland Revenue, https://perma.cc/AN8E-ZDCA.

[12] Acquiring Cryptoassets to Sell or Exchange, Inland Revenue, https://perma.cc/BAL8-XSWJ. See Income Tax Act 2007 s CB 4.

[13] Acquiring Cryptoassets to Sell or Exchange, supra note 12.

[14] Trading in Cryptoassets, Inland Revenue, https://perma.cc/9B3U-PBLM.

[15] Using Cryptoassets in a Profit-Making Scheme, Inland Revenue, https://perma.cc/PW33-UD5G. See Income Tax Act 2007 s CB 3.

[16] Cryptoasset Businesses, Inland Revenue, https://perma.cc/YM6V-X5WQ. See Income Tax Act 2007 s CB 5 & subpart EB.

[17] Using Cryptoassets for Business Transactions, Inland Revenue, https://perma.cc/L97T-WN2B. See Income Tax Act 2007 s CB 1.

[18] Using Cryptoassets for Business Transactions, supra note 17.

[19] Id.

[20] Providing Cryptoassets to Employees, supra note 2.

[21] Inland Revenue, GST Policy Issues: An Officials’ Issues Paper 13 (Feb. 2020), https://perma.cc/2LXP-MTRU.

[22] Id. at 15-16.

[23] Id. at 17.

[24] Id.

[25] Id. at 17-18.

[26] Id. at 19.

[27] See Buying and Selling Cryptoassets, supra note 11 (click link from “acquiring”).

[28] Mining Cryptoassets, Inland Revenue, https://perma.cc/B65V-VBAL.

[29] Mining Cryptoassets as a Business, Inland Revenue, https://perma.cc/BV2S-TBH3.

[30] Mining Cryptoassets for a Profit-Making Scheme, Inland Revenue, https://perma.cc/4WHD-4P29.

[31] Mining Cryptoassets for Ordinary Income, Inland Revenue, https://perma.cc/24G6-UZX4.

[32] Mining Cryptoassets as a Hobby, Inland Revenue, https://perma.cc/6Z7E-SZSZ.

[33] New Zealand Introduces New Tax Guidance for Cryptoassets, supra note 6.

[34] Inland Revenue, Income Tax—Tax Treatment of Cryptoassets Received from Blockchain Forks and Airdrops 14 (Tax Counsel Office, Issues Paper #14, Dec. 7, 2020), https://perma.cc/UU5R-ZN8J.

[35] Id. at 38-39.

[36] Id. at 33-37.

[37] Id. at 16.

[38] Id. at 42-43.

[39] Id. at 40-42.

[40] Id. at 46.

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Last Updated: 02/05/2021