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Tax Implications of Bitcoin ETFs and Other Foreign Investments in New Zealand

The surge in the popularity of Bitcoin ETFs has many New Zealanders wondering about the tax implications. Here’s a simplified guide to help you understand how a Bitcoin ETF or other Foreign Investment Funds (FIFs) are taxed in New Zealand.Just because you invest in a Bitcoin ETF does not give us the required information to provide tax advice. A Bitcoin ETF is only the name of the investment. It could equally be a S&P500 ETF, or a NZX10 ETF. To provide correct tax advice, we need to know wh...

Recovering Crypto in Bankruptcy: Tax Implications You Need to Know

This article has now been updated. Please refer to the updated version here.The IRD has made it clear that losses suffered from exchange platforms going under are only deductible if bankruptcy proceedings have been finalized. Please see our article here for more information.A recent development in the Celsius bankruptcy has resulted in many clients recovering a portion of their lost crypto.Claiming tax deductions for recovered crypto depends on the completion date of the bankruptc...

Claiming Cryptocurrency Expenses

We are often asked, what expenses can I claim for my cryptocurrency activity? The answer will depend on whether you are classified as an investor or a trader of cryptocurrency. Profit from both investor’s and traders’ sales of cryptocurrency is taxable income. However, they are taxed under different sections of the Income Tax Act. One is carrying on an active business activity, while an investor is a largely passive activity.Generally, if you are a trader, you can claim a wider range of expe...

2023 Cryptocurrency Financial Statements & Tax Returns

We’d like to start preparing your 2023 financial statements and tax return and need information from you. To accurately calculate your taxes, we need to have details of every single transaction involving buying, selling, swapping, earning/staking, gifting, airdrops, ICOs and margin/futures trading We’d like to ensure we have all information (and identify any missing parts) before commencing your work. This will provide us with an overview of what to expect, to ensure your work is c...

Tax implications of FTX and Celsius Bankruptcy

Earlier this month, we presented to IRD about claiming tax loss for taxpayers who held cryptocurrency on these platforms. A summary of that presentation can be found here. We have now received a reply to that presentation, and this article outlines their position. This position is yet to be tested but is an update on IRD’s current thinking today.In summary, IRD’s view is that FTX and Celsius’s investors are unlikely to be able to claim losses on inaccessible funds in their 2023 income...

Cant pay your tax?

Many of our clients made some profits in the crypto market during the 2022 Financial year (from 1 April 2021 to 31 March 2022), and now they have to pay taxes which are due by 7 April 2023. But, some of these clients haven’t set aside enough money for taxes, and the market crashed, and some crypto exchanges went bankrupt in the 2023 Financial year. So now they’re struggling to pay up by the deadline.We’ve been getting a lot of emails from worried clients about what to do if they can’t pa...

Requesting Crypto Information for Tax Purposes

As we approach the end of the 2023 Financial year, the task of gathering exchange information and tracking tokens may seem overwhelming. However, we are here to help. This article provides a comprehensive guide on what is needed to calculate your taxes with precision and efficiency, along with an overview of what to expect.A stock take of crypto that you held on 31 March 2023To make sure we get your closing stock calculation right and catch any missing transactions, we require a stock take repor...

2022 Terminal Tax Payments – due 7 April 2023

Many of our clients made some profits in the crypto market during the 2022 Financial year (from 1 April 2021 to 31 March 2022), and now they have to pay taxes which are due by 7 April 2023. But, some of these clients haven’t set aside enough money for taxes, and the market crashed, and some crypto exchanges went bankrupt in the 2023 Financial year. So now they’re struggling to pay up by the deadline.We’ve been getting a lot of emails from worried clients about what to do if they can’t pa...

FTX & Celsius Bankruptcy – IRD Presentation

Note: IRD has now replied to our presentation. They have issues about the timing of the deductibility, and if in fact the tokens are worthless on 31 March 2023 which can be viewed here.Tim recently presented to Inland Revenue (IRD) on how we see income tax legislation applies to losses from Celsius and FTX bankruptcies. The outcome was that they would not agree or disagree with what we presented, which was frustrating, especially considering how close we are to the end of the financial year...

Crypto Tax Update (2023 Market Decline)

In recent months, we have had many difficult conversations with cryptocurrency clients about their tax liability for the 2022 financial year (from 1 April 2021 to 31 March 2022). Many of our clients made significant profits in the 2022 financial year but have since seen the market crash (or have lost crypto in Celsius, Luna, or FTX). Some are now left with a significant tax liability and little to show for it.It is not unusual for clients to have made substantial profits from exchanging tokens a...

Tax Position on Sacrificing Tokens to Pulse Chain

Some clients have sacrificed HEX tokens with the intention to receive PULSE tokens once they are released.This article considers the tax position and the current application of the income tax legislation, draft IRD guidelines on DEFI protocols, and our understanding of sacrificing tokens for the Pulse Chain. This article may be updated when more information is available.Richard Hart has created a new token called Pulse. We understand that:Investors could sacrifice tokens (such as HEX or USDC) to...

Claiming Tax Losses From Cryptocurrency

Due to the market collapse in 2023, currently, we expect many clients will have losses from cryptocurrency. This may be compounded further because of the bankruptcy of FTX, Celsius, and BlockFi and not to mention TERA and LUNA situation. What a wild ride we’ve all signed up for.Because of the tax legislation, in nearly all cases, cryptocurrency losses will be tax deductible – like how in nearly all cases, cryptocurrency gains are taxable income.Therefore, if you’ve made a loss of $100...

DEFI Disposal & Acquisition Concepts

I recently presented at the Chartered Accountants Australia New Zealand (CAANZ) tax conference in Christchurch about cryptocurrency tax. The presentation included disposal and acquisition concepts of cryptocurrency DEFI tax which are outlined in this article.Some cryptocurrency investors will not find these concepts fair. I am not doubting or debating that. IRD’s position is to apply the facts of each case to income tax legislation. They will be independent, unemotional, and stick to the facts...

Implications of Cryptocurrency as Excepted Financial Arrangements

In March 2022, IRD released a new bill that classifies cryptocurrency as excepted financial arrangements (EFA). This was the same bill that removed GST from most cryptocurrencies and is retrospectively applied to 1 January 2009.The classification of cryptocurrencies as EFA aligns the taxation with other financial instruments such as share or options trading. In our opinion, the Income Tax Act still doesn’t align well with the volatile nature of cryptocurrency markets. More changes are needed (...

Accounting for Celsius Losses

Celsius is a cryptocurrency lending company. The primary service offered was a staking service. Users could deposit cryptocurrency into a Celsius wallet and earn a yield on the deposit (similar to a bank offering a term deposit). Celsius also offered leveraged finance, whereby users can use their cryptocurrency as security to draw down fiat or crypto loans from the platform.Celsius is considered a centralised finance (CeFi) platform, as a single entity controls it. This is contrasted with decent...

IRD Guidance on Airdrops

This month, IRD finally published guidance regarding the taxable treatment of airdrops.What is an airdrop?An airdrop is a distribution of tokens without compensation (i.e., for free), generally with a view to increasing awareness of a new token, particularly amongst influencers, and increasing liquidity in the early stages of a new token project.Tax TreatmentDepending on circumstances, an airdrop may be taxable in the following ways:On receipt (when they are received)On disposal; orOn both recei...

2023 Provisional Tax – due 28 August 2022

This article is about the first instalment of 2023 provisional tax due to the IRD on 28 August 2022.This tax payment is calculated based on the 2021 tax amount plus 10% or the 2022 tax amount plus 5%. If you do not expect to make a profit in the 2023 financial year, there is no need to pay tax. We have also published a video here for those clients who prefer video (and embedded below)....

Bulletproofing Your Cryptocurrency Record Keeping

Cryptocurrency trading can be like an emotional rollercoaster. When we present financial statements to clients, they are surprised to see their trading volume. It’s nearly always higher than they expected. They have transacted with cryptocurrency going back and forth, in and out, and around multiple activities, exchanges and platforms.One of the most crucial risk factors for cryptocurrency clients is their record keeping: specifically, the lack of it.Every single transaction, buying, selling, ...

Hidden Complexities of Buying Cryptocurrency for Someone Else

Sometimes, people might buy cryptocurrency on behalf of another. A friend or family member may say, “Hey, here’s $10,000. Can you get me some too?” At the time, it doesn’t seem like a big deal. But come tax time, it can create a nightmare, especially if there are multiple transactions and no clear understanding or agreements between you and the other person.In short, we strongly recommend keeping your cryptocurrency separate from everyone, especially friends and family. As the saying goe...

2022 Profits & 2023 Losses

Some clients have made record profits for the 2022 financial year (ending 31 March 2022). But, they have since had significant losses after the recent market downturn (in the 2023 financial year).The 2023 loss cannot be offset against the prior-year (2022) profit.A loss was previously able to be offset against a prior-year profit for 2020 and 2021 because of special covid tax legislation. The government mentioned that this legislation might be extended; however, it hasn’t been.Instead, 2023 lo...

2022 End of Financial Year Cryptocurrency Tax Checklist

The end of the financial year is 31 March 2022. This article outlines what information we need to prepare your financial statements. We recommend you action this today! It will save you time, costs, and unnecessary complexities.If you only do one thing today, please complete a stock tack of all cryptocurrency tokens you own and summarise this in an excel spreadsheet. This will prevent a lot of additional work, and prevent significant reconciliation issues.The financial year is from 1 A...

Understanding 2022 Provisional Tax

Most cryptocurrency clients made a profit in the 2021 financial year and will have 2021 terminal tax to pay on 7 April 2022.If the tax amount is more than $5,000, they will also have 2022 provisional tax to pay on 7 May 2022, calculated as 105% of the 2021 tax amount.Understanding 2022 provisional tax is important because:No one wants to pay more tax than what they have to.You want to meet your IRD obligations and prevent expensive IRD late payment penalties or use of money interest.You need to ...

Unrealised Gains from Staking Rewards – IRS Case

Last week there was hype about an American cryptocurrency tax case. “IRS will not tax unsold staked crypto as income” was the headline of the article. Unfortunately, we cannot make an conclusion this case, and we recommend the status quo continues.We have outlined further below the application to NZ taxpayers, but first, an overview of the IRS case....

The Worst Case Scenario

We’ve recently experienced a 50 – 60% decrease in cryptocurrency prices and woke up to several very concerned taxpayers on Monday morning.This article’s purpose is not to create fear, but rather to make you prepare for any tax, think about funding your tax payments, and consider how your cryptocurrency activity affects your tax payments. How much tax do you have to pay? When is it due for payment? How are you going to fund the tax payment?In our experience, those taxpayers who treat their ...

Benefits of Frequent Financial Reporting for your Cryptocurrency Activity

We’ve been preparing quarterly financial reports for several clients over the past 12 months and have found the reports and process extremely helpful.  The key benefits are: Addressing reconciliation issues during the year in small chunks rather than once at the end of the financial year. This ensures everything is fresh in your mind and you don’t have to think back to what you were doing up to 18 months ago. It also significantly reduces risk with IRD should they ask que...