GETTING DOWN TO BRASS TAX COMMENT

• Published date: 17 April 2024
• Author: Diana Clement Columnist Diana Clement is a freelance journalist who writes on personal finance and property investing
• Publication title: Kapiti News

But just like shares or property investing, it’s taxable, says Paul Quickenden, chief commercial officer at EasyCrypto

“There is an element of crypto traders [who] don’t see why they should pay tax,” says Quickenden. “But the reality is that Inland Revenue has given guidance that taxation is applicable and you need to self-calculate and declare that.”

That means completing an IR3 at the end of each tax year if you have sold crypto assets.

There are some nuances in relation to the different styles of crypto investing, says Quickenden. But the reality is the IRD knows people who buy crypto assets such as Bitcoin and Ethereum are doing it to make a capital gain. Those gains are taxable as income.

Accountant Garreth Collard of EpsomTax.com says crypto investors generally fall into one of three broad groups when it comes to tax.

The first is those who trade regularly. Their realised capital gains on disposals are taxable as income at their marginal tax rate. These investors can claim realised losses against their other income. It’s very similar to trading shares.

Then there are two groups of investors who “Hodl” (Hold On for Dear Life) their crypto, which means they’re buy-and-hold investors, says Collard.

“The first subset of that is the person who buys crypto and Hodls it. Whenever they sell it, that gain will be taxable income for them.” says Collard. “These people are buying for capital gain even though they’re Hodling or holding.”

The second subset of investors is buying crypto to Hodl, but “stakes” [leases] or lends crypto, for a return. That return is taxable as income. “They declare their staking rewards, usually in the form of more crypto, on their income tax return,” says Collard. Because they’re paying tax on the income along the way, the capital gain when they sell is not taxable, according to current interpretations of the IRD rules. Losses can’t be claimed against other taxes in this scenario.

The big but with all these scenarios is the IRD can change the rules or its interpretation at any time.

Anyone who is serious about their crypto investing and wants to trade in particular should seek advice from an accountant about holding those investments in a separate entity, rather than their own name, says Collard. It keeps their trading and any other forms of investment separate.

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