In an era where cryptocurrency integration into daily life is expanding, crypto-linked debit and credit cards represent a significant development. However, these cards come with important tax implications that require careful consideration.
Understanding the Tax Treatment
Inland Revenue (IRD) classifies cryptocurrency as property, not currency. This classification has significant implications for tax purposes, particularly when using crypto-linked cards. Any spending of cryptocurrency through these cards constitutes a disposal under section CB 4 of the Income Tax Act.
What is a Disposal?
Common cryptocurrency disposals include:
Converting one cryptocurrency to another
Converting cryptocurrency to traditional (fiat) currency
Using cryptocurrency for purchases (not limited to debit or credit card purchases)
Exchanging cryptocurrency for goods or services
Loading the Card
When you transfer cryptocurrency from your wallet or exchange to the card, this initial “top-up” transaction is typically not considered a disposal. You maintain ownership and control of the assets at this stage.
Making Purchases
The actual disposal event occurs when you spend the cryptocurrency, triggering tax calculations. The disposal amount is based on the cryptocurrency’s market value at the time of the transaction.
Record-Keeping Challenges
There is also an administrative burden of using crypto cards. Each transaction requires detailed documentation of:
Transaction quantity in cryptocurrency
Remaining balance in cryptocurrency
NZD value of the transaction
Cost basis of remaining balance
Integration with other holdings of the same cryptocurrency
This level of detail creates significantly more complexity than traditional bank statements, especially given cryptocurrency’s daily price fluctuations.
Practical Recommendations
Given the current regulatory framework, we generally advise against using crypto-linked cards for regular transactions. Instead, consider:
Converting cryptocurrency to fiat currency in larger, planned amounts
Managing these conversions with proper consideration of tax implications
Using traditional payment methods for daily transactions
This approach mirrors the principle of separation we recommend to business owners: maintain distinct channels for different types of transactions to simplify accounting and tax compliance.
Looking Forward
While cryptocurrency payment cards may represent the future of financial transactions, the current tax treatment makes their practical use challenging. Until legislation evolves to potentially classify cryptocurrency as currency, the administrative burden of using these cards likely outweighs their benefits for most users.
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Contact Us
Contact Tim Doyle for a call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
