New Zealand’s tax authority has issued new proposals on the Goods and Services tax (GST)-related policy in regard to cryptocurrencies and is seeking public feedback on the issue.
On Feb. 24, New Zealand’s Inland Revenue Department (IRD) released a paper, which includes proposals on the improvement and simplification of tax invoice requirements and exclusion of cryptocurrencies from specific GST provisions.
To minimize a distortion in the crypto market
The document admits that New Zealand has a fast-growing crypto assets market and expects that most stakeholders will welcome the proposed regulations, or suggest wider tax and regulatory reforms. The country’s tax system ostensibly intends to ensure that the tax rules do not create barriers for crypto-related developments. The paper reads:
“The definitions used for money or financial services as “exempt supplies” (meaning they are not subject to GST) did not contemplate crypto-assets, meaning GST may be imposed on certain types of crypto-assets, but not others – depending on their particular purpose and design. This inequitable GST treatment is unintentionally favouring certain types of crypto-assets over others and likely resulting in a distortion in the crypto-asset marketplace.”
What about income tax?
Specifically, the regulator proposes to exempt cryptocurrencies from both the GST rules and the financial arrangements rules, while crypto-related services — such as exchange services and mining — will continue to be subject to the existing GST and income tax rules. At the same time, users of certain crypto assets will have to pay income tax on unrealized gains and losses.
GST will still be applied to supplies of goods and services purchased with cryptocurrencies, the paper states:
“The proposed GST changes would only apply to supplies of crypto-assets. Other services related to crypto-assets, that are not in themselves supplies of crypto-assets such as mining, providing crypto-asset exchange services or providing advice, general business services or computer services will continue to be subject to the existing GST rules.”
The agency suggests that simple and clear tax rules will contribute to further the growth of the crypto sector in the country as they could ensure that crypto investors and businesses are not at a disadvantage due to dealing with such kinds of assets.
As such, the agency asks the public to provide feedback on the proposals set forth in the paper and comment on the potential approaches to the treatment of cryptocurrency.
While New Zealand is trying to establish itself as a crypto-friendly country, IRD Commissioner Naomi Ferguson has made it clear that the New Zealand government does not consider crypto to be a currency:
“In the Commissioner’s view, crypto-assets are property. Crypto-assets are not ‘money’ as commonly understood (at least not at the present time). In particular, because crypto-assets are not issued by any government, they are not legal tender anywhere.”