Do I have to pay tax on my Bitcoin?

Disclaimer: We are not tax professionals. For advice specific to your situation, please consult a qualified tax advisor or contact New Zealand’s Inland Revenue Department (IRD).

In New Zealand, cryptocurrency is generally treated as property for tax purposes. The Inland Revenue Department (IRD) has outlined guidance indicating that if your purpose in acquiring and holding cryptocurrency is to make a profit—whether through trading, speculation, or investment—any gains you realize when you sell, exchange, or otherwise dispose of it are likely to be taxable as income.

A basic example; As an individual if you buy some Bitcoin for $100 with the intent to sell at a profit and then it goes up in price and you sell the same amount for $200 then you have made $100 in profit. This profit is likely counted as income and then you would add it to your annual income and pay income tax on that at the prescribed rate.

Key points to consider:

  1. Intent and Purpose:
    Tax treatment often comes down to why you acquired the cryptocurrency. If you bought Bitcoin (or any other cryptocurrency) primarily with the intention of selling it at a higher price to make a profit, then the profits from that sale will generally be taxable.

  2. Regularity of Trading and Business-Like Conduct:
    If you engage in frequent buying and selling of cryptocurrency, or if you conduct your trading in a business-like manner (e.g., keeping detailed records, having a business plan), the IRD may consider you a cryptocurrency "trader." In such cases, any gains are more clearly viewed as taxable income.

  3. Occasional vs. Habitual Transactions:
    Even if your activity is not business-like, profits from one-off or occasional sales may still be taxable if your initial purpose at the time of purchase was to eventually sell at a gain.

  4. Exchanges of Cryptocurrency for Goods, Services, or Other Cryptocurrencies:
    A taxable event can also occur when you trade one cryptocurrency for another, or when you use cryptocurrency to purchase goods or services. The IRD generally views this as disposing of one asset and acquiring another, which can trigger a tax obligation if there’s a gain relative to the original cost.

  5. Losses:
    If you have bought and sold crypto with the intention of making a profit but ended up with a loss, these losses may be deductible and could potentially offset your other taxable income, provided you meet the necessary criteria.

  6. Record-Keeping:
    The IRD expects taxpayers who deal in cryptocurrency to maintain thorough records, including transaction dates, amounts, the value in New Zealand dollars at the time of each transaction, and the purpose or intent for buying.

What To Do Next:

  • Check the IRD Guidelines: Review the latest cryptocurrency-related tax guidance on the IRD website.
  • Consult a Professional: For personalized advice, consider speaking with a tax accountant or advisor who is familiar with cryptocurrency regulations in New Zealand. They can help you determine your taxable position, ensure you meet all reporting requirements, and assist in minimizing tax liabilities in a compliant manner.

In summary, most people who buy Bitcoin intending to sell it later at a profit will need to pay tax on any gains realized. The specifics depend on your individual circumstances, so obtaining professional advice is strongly recommended.