Source: Radio New Zealand
Last year IRD signalled it was honing in on people dealing crypto who were not declaring their income. Supplied
A crypto accountant is warning investors that the tax collector is coming for them, with seven out of ten people trading in crypto assets currently side stepping their tax obligations.
In July last year IRD signalled it was honing in on people dealing crypto who were not declaring their income.
The Department had identified had 227,000 unique crypto asset users in New Zealand undertaking around 7 million transactions with a value of $7.8 billion.
Accountant Tim Doyle specialises in cryptocurrency and said nearly a third of his clients have now received letters from IRD calling in tax they owe.
Doyle told Checkpoint while the law does outline that tax must be paid on crypto, the reality is a little more confusing.
“New Zealand doesn’t have a capital gains tax, so you can own property or own shares in companies and not have to pay taxes,”
“But with crypto because it’s digital because it’s intangible, ID have the default position that it’s a speculative investment and people have it likely acquired it for the purpose of disposal and that’s why they want to tax every single dollar of gains from it.”
Not everyone has to pay tax on crypto, it is only when the crypto is acquired with an intention to dispose that it must be paid.
“So that’s actually going to capture most investors or most crypto investors.”
An investor can have crypto sitting for as long as they like without having to pay tax on it, but as soon as they sell it, tax comes into play.
“As soon as they sell it to New Zealand dollars or they sell it from one token to another, that’s the time that any gains or losses are realised, and that’s the taxable point.”
Doyle said the amount of unpaid tax on crypto was “significant”, and over the past few years his business alone has been filing two to three voluntary disclosures a week.
The tax bills that have come through his office range from a few thousand dollars to a few million.
He said he has one client currently owing around $600,000, after his crypto took a huge dive.
“He put $100,000 New Zealand dollars into crypto, he was able to turn that into about $1.6 million over a couple of years… he took those tokens and he moved them into another token, which is a taxable event.”
“Rather than cashing it out and paying his taxes because he didn’t know about crypto tax, he left his crypto investment in the market.”
Doyle said the investments declined in value, back down to $100,000, leaving the client with a debt he doesn’t have the wealth to now pay.
He said it is clear there has been a stronger crackdown from IRD recently.
“I think there’s a strong mandate from this government to not only crack down on crypto tax, but just wider taxes as a whole.”
“Certainly IRD are sending out letters and requesting information on crypto from investors.”
Every single dollar of crypto is taxable at a taxpayers marginal tax rate, which could be as high as 39%.
“It’s treated the same as normal income, which is quite unfavourable and perhaps inconsistent from other asset classes.”
Doyle said cryptocurrency asset holders who are owing tax will first receive a warning letter from IRD, and may face an audit.
If the asset holder then doesn’t become compliant, further steps will be taken.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand