Proposed New Zealand crypto tax changes can certainly cheer up the community. The country’s tax authorities have recommended that cryptocurrencies should not be covered under its goods and services (GST) regime. The current treatment is highly biased as the tax authorities recognize cryptocurrencies as ‘property.’ Thus, a 15 percent tax is levied on crypto transactions. Furthermore, crypto is also covered under income tax, which leads to unnecessary ‘double taxation’ concerns.
Such biased treatment meted out to cryptocurrencies has been acknowledged by the New Zealand Inland Revenue Department (IRD). The proposed New Zealand crypto tax aims to remove the GST component and keep only the income tax treatment. Most countries charge cryptocurrency gains under the income tax.
New Zealand crypto tax changes aim to avoid double taxation
The IRD released a policy paper that explains the nation’s current predicament surrounding cryptocurrencies in detail. It states that cryptocurrencies are innovative digital assets and can have different features compared to traditional investment classes. This results in tax rule complexities increased compliance costs and multiple policy outcomes. Over-taxation is a natural outcome of such anomalies.
The prime aim of policy amendments must be to bring cryptocurrencies at par with traditional assets. They must be treated similarly to other investment products, especially when it comes to taxation.
Cryptocurrency taxes at par with traditional assets
IRD does acknowledge the predicament that different tokens have different natures. Thus, treating every token, in the same manner, is not possible. A solution would be to understand the underlying purpose of each token. For example, tokens that serve the purpose of currency should not attract GST, while others can be covered under a sales tax regime. Such a system would ensure that cryptocurrencies that resemble a fiat or a share would be classified under similar asset classes for computing tax.
The availability of thousands of tokens would make it difficult to apply the classification individually. The use case is different for each token means the classification would be highly complex and often overlapping. But the removal of crypto assets from GST is still justified to avoid double taxation. Let’s see how the upcoming New Zealand crypto tax rules will impact the industry.
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