The tax agency of New Zealand, the New Zealand Inland Revenue Department has ruled that income in bitcoin (BTC) is legal. On top of this, the body provided guidance on the taxation of income paid in BTC. The entity unveiled this news through its tax information bulletin on July 4. In the publication, the taxman summarized the provisions of the public ruling.
According to publication, the guidance on the income tax treatment of crypto applies to payments that form part of an employees’ regular salary. The agency would fix these taxes at a predetermined rate or amount. On top of this, it would only apply to salary or wage earners that get payments for both services and bonuses, commissions and gratuities. This means that self-employed taxpayers that earn BTC would not have their income taxed.
Ruling Only Applies to Money-like Crypto Coins
The ruling noted that taxable crypto salaries must involve coins that are not subject to a lock-up period. Also, they must be directly convertible to fiat currencies.
The New Zealand Inland Revenue Department explained,
In the current environment where crypto-assets are not readily accepted as payment for goods and services, the Commissioner’s view is that crypto-assets that cannot be converted directly into fiat currency on an exchange […] are not sufficiently “money-like” to be considered salary or wages.
According to the tax agency, money-like crypto coins provide a general P2P payment system. Under this ruling, coins that function as in a similar way to vouchers or shares do not qualify for taxation
Therefore, for a crypto wage to be taxable, the main purpose of the coin in question must be serving as a currency. Another option is when the coin is pegged to one or more fiat currencies.
Tightening Clampdowns on Tax Evasion Through Crypto
This news comes as tax agencies and legislators continue trying to find ways to curb crypto tax evasion. This involves taking measures such as clarifying which provisions that the coins fall under. Moreover, they are trying to tighten the noose on parties evading tax payment.
In the past week, a report unveiled that the UK’s tax payments agency had requested user data from crypto exchanges. Reportedly, the entity sent letters to at least three crypto exchange that operate in the country. These included Coinbase, eToro, and CEX.io. The taxman requested data on customer names and their transactions. In so doing, it sought to identify cases of tax evasion.
Do you think New Zealand’s clarification of crypto tax regulations will help promote crypto adoption in the country? Let us know in the comments below.