Tax Overview: Contractor Getting Paid in Cryptocurrency

More contractors are being paid in cryptocurrency. This occurs when a contractor performs services and receives cryptocurrency as payment (instead of NZ dollars).

The amount of remuneration (cryptocurrency received for services) will depend on the contracting agreement.

It could be tied to an hourly rate, then adjusted based on the market value of that cryptocurrency. For example, 10 hours at $100 per hour is $1,000 total; the contractor could receive $1,000 worth of ABC token based on the market price of ABC tokens when paid. This means that as the price of ABC tokens fluctuations, each pay period they may receive a different quantity of ABC tokens.

Or the contractor may be paid in cryptocurrency per job or per hour (for example 100 ABC tokens per hour/job) as agreed in the contract. If the price of ABC tokens fluctuations, they may receive depending on the price of the token.

Valuing the Cryptocurrency for Tax Purposes (stage 1)

That amount of cryptocurrency received for services performed is converted to the NZ dollar equivalent (based on market values). It is income to the contractor on the date that they received it.  This is normally when it is deposited into the contractor’s wallet and they have complete control and ownership of the token.

For example: Steven performs 10 hours of contracting work for the rate of $100 an hour ($1,000). For simplicity, let us say that Ethereum (ETH) token has a value of $1,000 per token at the time.

Instead of receiving NZ dollars for the work that Steven has done, he receives one ETH token. The NZ dollar value of ETH (at today’s date being $1,000) is taxable income to Steven and taxed as if it was NZ dollars received.

Steven will be able to deduct ordinary expenses that a contractor can claim (for example, home office expenses, expenses incurred to earn the income etc.).

End of the financial year

At the end of the financial year, all Stevens contracting income is combined (less any deductible expenses) to calculate his taxable profit (net income). His net income is then included in his income tax return, which he pays tax on. The amount of tax he pays, will depend on his total income from all sources.

Steven may have received many different quantities of ETH over the course of the financial year (each time he is paid). At each payment date, the amount of ETH received is likely to have a different NZ dollar value.

All the ETH that Steven has received during the year needs to be converted to NZ dollars on the day that he received it (using the market value on that day) and that combined amount is income for the year.

Disposal of ETH (stage 2)

A person is taxed on the receipt of cryptocurrency when received from contracting (as outlined above in stage 1), and again on the disposal (when sold or traded in the future).

In this situation, a deduction for the original cost value is attributed to the token. The cost price is equal to the value of the token at the time it was received (in respect of which tax has already been paid). There is no double tax.

The amount of income that Steven receives as income (outlined in stage 1 above), becomes the cost basis for his ETH.

The cost basis is important because it is allowed as a deduction when ultimately disposed.

Profit = sale price less cost basis

For example, if ETH were to increase in value to $10,000 and Steven was to sell ETH, he would have a second taxable event (selling the ETH).

The profit is calculated as the difference between the sale price ($10,000) less the original cost price ($1,000). In this second transaction Steven would have a second taxable profit of $9,000 being the increase in value from when he received it when it was worth $1000 to when he ultimately disposed it when it was worth $10,000.

Note: the taxable event of stage 2 only occurs when the cryptocurrency is disposed (sold or traded). This could be immediately upon receipt from the contracting services, or in the future for a different value.

Example 3: Immediate Disposal of Cryptocurrency

Steven performs contracting services and earns 1 ETH token which has a value of $1,000 at the time. He immediately decides to sell the cryptocurrency on the same day (to fund working related expenses and living costs). At the time he sells the ETH the market value remains at $1,000.

Stage one: the value of the cryptocurrency when received is $1,000. Steven has taxable income of $1,000.

Stage two: Steven sells the ETH for $1,000. The profit is calculated by the sale price of $1,000 less the cost basis of $1,000 which results in no profit.

As demonstrated above, there is no double taxation Steven pays tax on the $1,000 being the market value of ETH when it was earned from services performed (stage one) and because there was no price increase/decrease between acquiring the cryptocurrency and disposing the cryptocurrency there is no further taxable events to consider.

Contact Us

Contact Tim Doyle for a no obligation call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.


  1. Hi Tim, at stage 2, why is he taxed on the disposal? There is no intent ever to acquire for a profit, he simply wants to be paid in ETC instead of dollars. (Possibly because dollars are devaluing faster than Luna Rossa…but that’s not the point) If he was paid in NZD dollars for instance like most people, and the buying power of that $ increases because the NZD goes up against international currencies thus TVs and cars are cheaper, there is no tax to pay, so why here? What about if he was paid in USD or Gold coins, and they increase in value against the NZD, Are they taxable when he sells and why? What’s the explanation from IRD here? Thanks!

    1. Hi Roger, we’ve published more information about intention any why here: . Stage 2 relates to intention at acquisition. It is likely taxable on disposal (in stage 2), because he has acquired the cryptocurrency with an intention to dispose. Intention on acquisition is key (and I’m open to suggestions why he would acquire it without the intention to dispose). Why would you choose to get paid in cryptocurrency without an intention to dispose it? Even if it was USDT (or say NZDT equivalent), it has no value until you ultimately dispose into fiat, or dispose the crypto in a barter transaction (to receive some value in exchange). If he was paid in USD, the increase/decrease in value would be subject to financial arrangement tax rules (there is a cost basis de minimis). USD is a currency for tax purposes, where crypto is property so there is a fundamental legislative difference on tax here. Gold tokens would be taxed the same as crypto –> yes, increase/decrease between stage 1 and stage 2 is taxable. Explanation from IRD is s CB4 of Income Tax Act.

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