With the influx of a number of cryptocurrencies in the market promising different advantages, Bitcoin, Ripple, Ethereum just to name a few, are setting examples in the cryptocurrency market.
The currency is encrypted in a technology named “Blockchain” that is responsible for regulating the generation of new units and verifying fund transfers. It operates independently of any central bank and can be transferred without going through a bank and therefore forms as the basis of decentralized currency.
Inland Revenue Customer Segment Leader Tony Morris, who oversees this work program, says trading in cryptocurrencies may happen in a digital realm but tax obligations still apply in New Zealand.
“Inland Revenue has responded to requests for guidance by issuing some common questions and answers on our website so that everyone knows their responsibilities. Just like with property – when you acquire cryptocurrency for the purpose of selling or exchanging it, the proceeds you make from selling it are taxable.
The purpose is hard to argue here since with Bitcoin and other cryptocurrencies, generally the only time they produce an income is when they change hands.”
Tax is also applied when one cryptocurrency is swapped for another. To fulfill a tax obligation, one doesn’t always need to pay in Dollars. Likewise, if you receive a cryptocurrency as payment for goods or services, this is considered business income and is taxable.
Mr Morris said,
“It’s important to keep good records of your transactions as this information will be useful when filing a tax return. Let Inland Revenue know if you think you haven’t got your past tax returns right so that it can be corrected. Operating in the digital world doesn’t absolve you from your tax obligations. It also doesn’t mean your activity is untraceable.”
To read more about the guidance, click here.
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