Tax authorities in New Zealand are to allow income to be paid in cryptocurrency and have set out new rules on how such payments should be taxed.

In the August edition of its Tax Information Bulletin, New Zealand’s Inland Revenue Department, published “binding rulings” numbers BR Pub 19/01 and 19/02 on salary and wages paid in cryptoassets and bonuses paid in cryptoassets.

Defining Cryptoassets as Salary

The rulings stated that to be considered salary or wages cryptoassets must be “sufficiently similar to existing notions of salary and wages”, in that they are not subject to a “lock-up” period and that they can be converted directly into a fiat currency on an exchange.

Furthermore, either a significant purpose of the cryptoasset must be to function like a fiat currency, or the value of the cryptoasset must be pegged to one or more fiat currencies.

Therefore, such digital assets that must be traded first into more mainstream alternatives such as bitcoin or ether before being converted into fiat cannot be considered as salary. 

Where cryptoassets are not readily accepted as payment for goods and services, the Commissioner’s view is that cryptoassets that cannot be converted directly into fiat currency on an exchange are not sufficiently 'money-like' to be considered salary or wages.

Taxing the Total

The rulings concluded that where any part of a salary payment is provided in cyptoassets, an employer must gross up the net amount into New Zealand dollars (NZD) and will be taxed at the appropriate level. The employer will not be expected to convert the crypto payment into NZD, the report added.

Converting the value of cryptoasset payments into NZD must be calculated on the date it is paid to the employee. The Inland Revenue said that such conversion rates may be obtained from a public exchange that has “comprehensive know-your-customer/anti-money laundering procedures in place”. It added:

Which exchange (or exchanges) is appropriate will depend on the circumstances. Using a New Zealand-based exchange listed on the Financial Service Providers Register will be appropriate.

Bonus Payments

The tax commissioner found that most mainstream cryptoassets that can be traded on an exchange for fiat currency can be seen as a taxable payment. However, those that are not readily tradeable on an exchange are “not sufficiently equivalent to money to be considered a bonus for PAYE purposes”.

The terms of conversion of cryptocurrency prices into NZD values applied the same as in the ruling for salary and wages.