IRD first mentioned in 2017 that GST legislation has been in progress to remove GST from cryptocurrency. The Australia Tax Office (ATO) updated their legislation in 2017, and by the meetings and discussions we had with IRD, it sounded like a six-to-twelve-month process. However, four years on, here we are, and finally, IRD has spoken. The changes are positive.
The time delays in providing certainty to cryptocurrency taxpayers give an insight into how IRD are under-resourced. They appear to be consumed with Covid related issues, online myIR software updates, and significant tax changes in other areas; property tax changes (bright line extension, removal of interest deductibility, etc.), increase in top marginal tax rates to 39%.
In the last four years, we have seen other significant developments in the cryptocurrency space such as defi, NFT’s, centralized loans, collateral loan positions, and so much more. Another wait is likely on the cards before IRD will provide certainty on these matters.
Excluding cryptocurrency from GST
New GST legislation changes amend the definition of goods and services in section 2(1) of the Goods and Services Tax Act 1985 (GST Act) to exclude cryptocurrency. Therefore, the legislation change requires a definition of cryptocurrency (or “cryptoassets,” as IRD refers to).
The definition of a cryptoassets is broad “as a digital representation of value that exists in a distributed ledger (such as a blockchain) and is secured cryptographically to record the ownership and transactions involving cryptoassets.” The commentary on the bill suggests this definition is to future-proof it against any technological advancements in the blockchain and cryptography area by including another application of the same technology performing an equivalent function. To meet the definition of cryptoassets, the asset in question must also be fungible.
This GST legislation change means that buying and selling cryptocurrency is not subject to GST.
Click here for the full IRD commentary on the bill.
The new GST legislation to exclude GST from cryptocurrency applies from 1 January 2009; the date Bitcoin was launched.
Non-Fungible Tokens (NFTs)
GST still applies to NFTs. NFTs certify a digital asset to be unique and are not interchangeable. They are generally used to represent photos or videos and can be owned or traded utilizing a blockchain.
Most NFTs are sold on nomad websites such as OpenSea. The anonymous trading nature of NFTs makes it challenging to determine if the consumer is in NZ (and therefore, subject to GST at 15%) or if the consumer is overseas (and thus, subject to GST at 0%). GST on exported goods (or goods not in NZ at the time of supply) is zero-rated for GST purposes. Zero-rated means that GST is charged but at zero percentage (therefore, no GST is payable). In most cases, GST can still be claimed on deductions.
Supply of services and being paid in cryptocurrency
If you provide contracting services and are paid in cryptocurrency, the supply of services is subject to GST (and income tax).
For example, clients of Evans Doyle (our accounting firm) can choose to pay their invoices in cryptocurrency. We are providing accounting services and getting paid in cryptocurrency. Our invoices are subject to GST, and we collect 15% GST and pay the GST to IRD. Likewise, we can claim GST on our expenses (rent, software, subscriptions, etc.) like ordinary businesses.
Future disposal of the cryptocurrency (after the acquisition) is not subject to GST. This is because of the new legislation change (GST being removed from cryptocurrency as outlined above).
GST must be charged at 15% on the value of services provided (to services to NZ customers) and zero-rated (charge GST at 0%) to services to non-resident customers.
Contact Tim Doyle for a 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.