Do I Need to Pay Tax on Crypto?

Made a profit? Pay up!

These days, the IRD requests that cryptocurrency exchanges share transaction data with the department. That means your trades are on their radar (their tradar? Maybe? No, okay…)

What we’re trying to say is the IRD knows if you’re using crypto for investment reasons, so when you do sell up, you have to pay income tax on that profit (with some exceptions.) Think of it in the same way as paying taxes when running a business or trading on the stock market.

To keep things fair, if things go pear-shaped and you lose money on an exchange, you might be able to claim this as a loss.

So does tax always apply to crypto?

Nope. You only have to pay tax when you dispose of your cryptocurrency. According to the IRD, this could mean you:

• Sell your crypto for cash
• Exchange your crypto for another type of crypto
• Buy goods or services with your crypto
• Give crypto as a gift

Simply moving crypto assets between wallets, addresses or accounts that all belong to you isn’t classed as disposal.

With us so far? Good, because things are about to get a touch more complicated. Because although no tax applies if you haven’t disposed of your crypto, moving your crypto from BTC to ETH (for example) makes your profits taxable.

You don’t need to cash out in NZD to create a tax obligation. Instead, you’ll have to work out what the BTC was worth in fiat currency (i.e. NZD) when you first bought it, and then what the ETH was worth when you made the trade. This gives you a flat difference in NZD, which is effectively your profit. This amount is subject to tax.

If you want to get across your tax obligations like a pro, check out a solution like CoinTracker.

What you need to know come tax return time

Picture this: It’s March 31st, summer already feels like a lifetime ago and now you have to lodge your tax return too. We’d take a guess that tax return season isn’t your favourite, but it’s important that you get your return right. So suck it up, buttercup.

Once the year has ended, individuals will have to complete and file an individual tax return (IR3). Businesses and organisations can file an IR4.

To report crypto trading gains and losses, use the “Other Income” section of your return. Calculate the NZD value of your crypto assets (using the process mentioned before) and note down any gains or losses on each transaction. Be sure to declare all activities where cryptocurrency created taxable income. i.e. when those assets were disposed of.

Crypto tax got your brain in a tizz?

Yeah, that’s fair. Crypto has brought with it brand-new terminology and processes to understand - from blockchain to NFTs. And we don’t know about you, but we’re still working out why people kept trying to buy digital monkeys a couple of years back.

What we do know is accounting. So if you need a pro to help get things in order before tax time creeps up again, book a call.

P.S. We scooped heaps of the info for you crypto buffs from this blog from Swyftfx. Feel free to head there for a deeper dive.

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