(cryptoasset tax – 3 minute read)
Hi there accounting fans!
Apologies if it seems like all I do these days is write about crypto tax! But I promise that this is the last article on anything crypto that I’l be writing about for a while (at least until next year).
Now, I would like to emphasise my personal stance that cryptoassets are extremely high risk investments. If you are looking to grow your wealth, you should consider other safer investment options.
Want some investment advice? Learn how to set your financial goals here first!
But of course, we have readers out there who have cryptoassets and simply want to know how to calculate taxes on them. This is what this series of articles have been all about.
We have looked at the tax implications on holding cryptoassets for individuals and we’ve taken a look at how cryptoasset income is determined for businesses.
Now lets look at how to calculate tax on cryptoasset income here in Aotearoa NZ!
Cryptoasset tax step#1: What’s the NZD value of your crypto income
Alright, we’ve established that cryptoasset income happens when:
- You sell cryptoassets for a gain
- You receive cryptoassets as part of your remuneration or in the normal course of running a cryptobusiness
In either case, you need to work out what the NZD value of your crypto transactions are.
Let’s take an example:
Mika bought 500 units of uwucoin at $0.50 each. One year later, the price had gone up to $1.00 each. He sold all his uwucoins for $NZD 500, making a gain on sale of $NZD 250.
This is a simple example. The taxable income is deemed to be $250 since that is the dollar value gained on the sale of the cryptoassets.
Here’s a trickier example:
Yusuf runs a crypto mining business. Over a three month period from January to March 2021 he received 300 units of bugcoin through his mining activities. The bugcoin received is considered as income to him and is taxable.
In this case, Yusuf needs to work out the value of the 300 units of bugcoin when he receives them. If he received 100 units on 15 January, 100 units on 28 February and 100 units on 12 March 2021, he needs to determine the NZD value of each transaction on each date.
Working out the cryptoasset conversion rates
IRD has made it clear that you need to use conversion rates from a reputable exchange with comprehensive Anti Money Laundering safeguards in place. Generally speaking you can use any platform to calculate conversion rates (so long as it is reputable). However, IRD does recommend using one of the following sites:
Yahoo Finance:Cryptocurrencies
Cryptoasset tax step#2: Work out your income and expenses
After working out the NZD value of your crypto transactions, you will need to work out the income and expenses of your crypto trading/business activities.
This part is similar to other businesses. You start off with your income and you can deduct your expenses from your income to get to your profit (taxable income).
Cryptoasset income
This is the NZD value of:
- Gains made on trading cryptoassets
- Cryptoasset income received for services
- Cryptoassets received as part of running a cryptobusiness (airdrops, hard forks, mining rewards, etc.)
Total them all up and you get your income!
Cryptoasset expenses
This is the NZD value of
- Operating costs of the business (rent, power, wages, internet bills, etc.)
- Cryptoasset acquired for trading
- Cryptoasset payments made to staff and/or contractors
Total them all up and you get your expenses
Taxable income
Once you’ve worked out your income and expenses, you can get your taxable income which is your income minus expenses.
Let’s look at an example:
Tan runs a crypto mining business that mines primarily suscoins. Through his mining activities, he obtains 1,000 units of suscoins in a year. The NZD value of his mining income was $20,000 a year. Tan hires two part-timers who do contract work for him, helping him maintain and service his mining rigs. They get paid in suscoin as well. He pays them 100 suscoins each for their work. The NZD value of his payments were $300 each (based on the conversion values at time payment was made). He has other operating costs which amount to $5,000 a year.
In Tan’s case, he makes income of $20,000 a year and expenses of $600 ($300 times two). With operating expenses of $5,000 a year. He is looking at a taxable income of NZD $14,400 ($20,000 minus $5,600).
Cryptoasset tax step#3: Pay yer taxes… And keep your records tidy!
You’ve got your taxable income now. You just have to declare the gains made as self employment income (if filing as an individual). If you are filing as a company, then you declare the income as part of your business income. Tax will be calculated as usual on the income you derive from cryptoassets.
If you are filing as an individual, your cryptoasset income will be added to your income from other sources and you will be taxed according to the scale rate.
If you are filing as a company, you will be taxed at the corporate rate of 28%.
But wait! It doesn’t just end there! You need to still keep proper records of your cryptoasset transactions to support your tax return. This information includes:
- The type of cryptoasset
- Dates of the transactions (buying/selling/receiving as income)
- Type of transaction
- Number of units
- Value of the transaction in NZD
- Opening and closing values of each cryptoasset each year
- Bank statements
- Exchange records
- Wallet addresses (for hot wallets)
- Wallet summaries (for cold wallets)
If you are using online crypto exchanges, you need to save a copy of the transaction everytime you make one. All records need to be kept on hand for a minimum of 7 year, even if you no longer trade in cryptoassets after that.
That’s all there is to crypto tax in NZ! Please note that the advice given in these articles are at a very general level. If you do require specific advice about your unique tax situation, you can get in touch with us at SH Advisory and we’ll be happy to help you work out your tax obligations.
Until next time!
Stay positive!