IRD chasing cryptocurrency tax dodgers

Technology / news

Inland Revenue identifies 227,000 NZ customers with transactions valued over $7.8 billion, as crypto dealing comes under scrutiny

4th Jul 24, 10:57am by Juha Saarinen

Source: 123rf.com

"Despite popular thinking - people are not invisible on [the] blockchain, and we have the analytics capabilities to identify and expose crypto asset activities," Inland Revenue Department spokesperson Trevor Jeffries warns.

The warning comes as the IRD intends to scrutinise people who actively deal in crypto assets, but aren't declaring income from this in their tax returns. This isn't the first time the department has notified people that money from selling, trading and exchanging crypto is taxable: last year it wrote to high-risk customers to give them the chance to sort out any non-compliance issues before facing audits.

IRD has used its analytics tools to identify a substantial amount of crypto traders in New Zealand, some 227,000. They have undertaken around 7 million transactions, valued at $7.8 billion.

That crypto values have reached new highs means people are well positioned to pay their tax for the 2024 and earlier year, IRD said.

Even keeping transactions outside the country is unlikely to hide them from the IRD.

The tax department said it receives data from crypto exchanges in New Zealand and overseas, and has signed up to the OECD crypto asset reporting framework.

"That means New Zealand works closely with other tax jurisdictions and will get more data on customers' crypto asset transactions outside New Zealand," the department spokesperson said.

In June this year, exchange Easy Crypto said it has almost 250,000 investors. Easy Crypto said its research showed nearly half of all New Zealanders either own or are considering owning crypto currency, with more users in the under-35 age group.

Other investment platforms such as Sharesies, Hatch Invest and Kernel Wealth also offer exchange traded funds, a pooled investment security that can be bought and sold as individual shares.

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54 Comments

by J.C. | 4th Jul 24, 11:21am 1720048907

The tax department said it receives data from crypto exchanges in New Zealand and overseas, and has signed up to the OECD crypto asset reporting framework.

Honestly speaking, I think they're fighting an uphill battle to control the taxation of crypto. There are a range of different scenarios I can think of.

- Unless defi has some type of travel rule or KYC, then it's quite difficult to track who, what, how much has been traded. The US agencies are of course terrified by this.

- Different jurisdictions have different rules. For ex, a NZ citizen can legally be a tax resident of another jurisdiction where crypto tax doesn't apply. Dubai is a haven for crypto whales and successful traders.

- Crypto can be owned by different legal entities as opposed to individuals. For ex, it can be owned by limited liability companies that are not liable for tax in NZ.

by cromulent | 4th Jul 24, 12:26pm 1720052803

Yes and then there is the use of Decentralized Exchanges (DEX). Making profit by buying and selling through an centralized exchange is one thing but swapping/converting to stablecoins or other crypto via a DEX is also a taxable event in theory. There are hundreds of DEX's out there i can almost guarantee are not reporting to tax authorities around the world. I don't even know how they could when they have no details on you and you do not have to register to use them like a CEX.

by J.C. | 4th Jul 24, 1:17pm 1720055857

By defi, I'm referring to DEXs. Your point is relevant.

by BigOldWeapon | 4th Jul 24, 3:26pm 1720063612

You're not quite right here, but of course it depends how in-depth IRD go with their digging. I will assume you are talking about Ethereum and not some obscure chain with anonymity. Everything on Ethereum is publicly available. For example, I can buy through Easy Crypto (this is reported to IRD, so IRD theoretically know my wallet address and how what tokens I have purchased), then do various Uniswap trades to USDC, WBTC, whatever - and all of that transaction data is freely available for anyone to view. What I am saying, is DEX's do not need to report to tax authorities, as all the data is publicly available. Now, whether IRD have the tooling available right now to scrape that data from the blockchain is anyone's guess. But it's just a matter of time, in my opinion.

by J.C. | 4th Jul 24, 3:32pm 1720063958

You're not quite right here, but of course it depends how in-depth IRD go with their digging.

I'm 100% right.

by BigOldWeapon | 4th Jul 24, 3:33pm 1720064016

Tell me where you think I am wrong.

by BigOldWeapon | 4th Jul 24, 3:34pm 1720064050

For the record, I wasn't actually responding to you. But if you believe anything I have said is wrong, I would like to hear you out.

by J.C. | 4th Jul 24, 11:21am 1720048883

Easy Crypto said its research showed nearly half of all New Zealanders either own or are considering owning crypto currency, with more users in the under-35 age group.

The problem with EC's research is that it's not representative and done by crude measurements such as cheap online panels. The Federal Reserve does a 'Report on the Economic Well-Being of U.S. Households'. The research shows approx 7% of h'holds own crypto - falling from previous years.

Directionally, EC's claims about young owning or wanting to own crypto makes sense. However, that same segment may not want to be so candid about owning crypto. Nothing to do with criminality. It's a privacy issue. Boomers might not get this.

https://www.federalreserve.gov/publications/2023-economic-well-being-of…;

by Averageman | 4th Jul 24, 11:25am 1720049127

But but "I didn't mean to make a profit". It works for housing speculators...

by bw | 4th Jul 24, 11:50am 1720050617

Ah. But is that about to suffer a Bishop Enlightenment as well?

"Cryptoassets or cryptocurrencies were treated as a form of property for tax purposes. “What people make from selling, trading or exchanging ..... is taxable,” the IRD said today" (Herald)

by J.C. | 4th Jul 24, 11:53am 1720050837

But but "I didn't mean to make a profit". It works for housing speculators...

It's an interesting argument. If someone holds rat poison to preserve their wealth from monetary debasement, they're not speculators. Similarly, property owners can use the same argument.

Should we be taxed on behaviors that protect ourselves from theft by govt agencies like central banks? I think most people like monetary debasement mainly because asset prices rise as a result.

by the Joneses | 4th Jul 24, 1:19pm 1720055962

How would one come to the conclusion that Bitcoin was a stable store of wealth?

by Baywatch | 4th Jul 24, 2:08pm 1720058911

14 years of data...best performing asset over that period...need some more info?

Edit: actually Nivdia may have beaten Bitcoin ..I stand corrected.

by J.C. | 4th Jul 24, 2:36pm 1720060587

14 years of data...best performing asset over that period...need some more info?

I think Jonesy is referring to store of 'value' (not wealth). But you are correct if you're suggesting that in terms of wealth generation, BTC has been phenomenal.

As for SOV, the water cooler consensus is that BTC is not a SOV because its fiat price is too volatile. Lord Orr confirmed this in one of his speeches.

If you take the counter position to the water cooler crew and Lord Orr, that's all very well. But pays not to push the issue. Chances are they haven't put in the work or zoomed out.

by the Joneses | 4th Jul 24, 2:49pm 1720061385

Yeah, I was countering the point that someone didn't want to gain value speculatively by holding Bitcoin, so shouldn't pay tax.

At no point in Bitcoins history has it held its value in any stable fashion vs CPI or the Big Mac Index or any other common way of measuring value over time. In fact it is designed to go up in value as the cost of mining increases over time (so long as there is still buyers).

It is like someone boarding a plane, and saying they didn't expect to leave the ground.

by J.C. | 4th Jul 24, 3:03pm 1720062239

At no point in Bitcoins history has it held its value in any stable fashion vs CPI or the Big Mac Index or any other common way of measuring value over time.

On the contrary. Given that BTC has increased in fiat value by approx 100% pa over the past 14 years, it has more than held its value relative to CPI inflation. And if you included the Big Mac price in BTC in the BM index, variation would be wide. But over time, it's quite obvious that BTC has held its value compared to fiat currencies.

by the Joneses | 4th Jul 24, 3:39pm 1720064361

It's an interesting argument. If someone holds rat poison to preserve their wealth from monetary debasement, they're not speculators.

Bitcoin in NZD price has steadily increased 500% in the last five years. The average NZ wage in that time has increased 20%.

If your uncle Bill mentioned that performance to you and suggested you invest, would you assume you are getting it to a pure inflation hedge scheme to stop inflation eroding your savings, or a speculative investment?

by Baywatch | 4th Jul 24, 4:13pm 1720066385

So gold is not a store of wealth either...?

by J.C. | 4th Jul 24, 4:35pm 1720067754

I think gold is a SOV. But what would I know and I cannot empirically prove that it is any more a SOV than fiat currency. All depends on your assumptions and parameters.

But even I 'guess' it is, my intention and belief belong to me. Shouldn't matter what the ruling elite or other people think.

by the Joneses | 4th Jul 24, 6:02pm 1720072968

They both are used as a store of value, but they are both speculative investments. That is why I believe you need to pay tax on gold investment gains.

by Firstclass | 5th Jul 24, 4:11pm 1720152688

You could just ask "How would one come to the conclusion that a piece of paper is a stable store of asset ?" After using gold.

by Zwifter | 4th Jul 24, 12:15pm 1720052118

Yeah but you don't put a million bucks into Crypto do you ? Houses are for living in, mine is saving me $700 a week in rent, what's next you are going to tax me because I'm saving rent money ? Crypto is pure speculation fuelled by hopeium.

by kiwikidsnz | 4th Jul 24, 12:33pm 1720053220

"...what's next you are going to tax me because I'm saving rent money"

You think not? Hold my beer

https://letstalkabouttaxnz.com/2016/12/18/imputed-what/ 

https://www.motu.ac.nz/our-research/wellbeing-and-macroeconomics/fiscal…

https://en.m.wikipedia.org/wiki/Imputed_rent

by J.C. | 4th Jul 24, 2:00pm 1720058412

""Yeah but you don't put a million bucks into Crypto do you ?"

Is there a rule? $1 million in crypto is not much depending how far down the road one is. For boomers allocating 1% of their portfolio to rat poison, it's a lot. And for most boomers, trying to navigate crypto platforms is like a monkey flying a plane.

by Zwifter | 4th Jul 24, 3:28pm 1720063730

80/20 rule applies to a number of things in business, I'm betting the top 20% hold 80% of the Bitcoin, its probably way worse than that. Wouldn't be far down before you would be looking at the majority of people owning like $1000 worth of it or less.

by J.C. | 4th Jul 24, 3:47pm 1720064823

<2% of BTC addresses have more than 1 BTC. Top 20% of addresses hold approx 99% of mined BTC. For someone to have made USD1 mio from USD1K (w/out leverage), they would have had to buy in 2013 at latest. Mt Gox customers for ex.

Plenty of millionaires in the altcoin space, particularly Ethereum.

by SND | 4th Jul 24, 11:48am 1720050512

Never had any problem paying tax on the profit I make with cryptos. I was actually short $1500 in tax last year, not a problem at all when BTC made +85% yoy for me.

by J.C. | 4th Jul 24, 11:55am 1720050950

Paying your taxes is a good thing. But if you don't have a legal obligation to pay, don't.

by BigOldWeapon | 4th Jul 24, 3:29pm 1720063768

Are you suggesting that someone in NZ buying and selling crypto may not have a legal obligation to pay tax? Because that would of course be completely wrong.

by 21Trillion | 4th Jul 24, 2:19pm 1720059583

I'm filing mine, paying tax on gains that have never reached the dollar or this country's financial system. Paying tax on unrealized capital gains, meanwhile property boomers are milking millions tax free

Yet I know of many boomers raking in literally millions tax free on investment property that they only built to intend to sell.

"I have a ruling from the IRD because each of my family members lives in one of the 6 houses for 2 years, so when we sell them we are tax free".

Make that make sense. 10m+ tax free with intention to sell, vs 10k for a young person paying 33% without it ever being sold to NZD or disposed of for purchase.

Backwards country. Crypto gains are bringing dollars into NZ, property is recycling future labour today. Why are we taxing the one bringing wealth into the country?

by BigOldWeapon | 4th Jul 24, 3:33pm 1720063986

What do you mean when you say "paying taxed on unrealised capital gains"? If you buy 1BTC and it 10x's but you don't sell (unrealised capital gains, in other words) then there has been no taxable event and you owe nothing. If you then swap that 1 BTC for 10 ETH, then you have triggered a taxable event. Still unrealised in a NZD sense, but alas, that's the way things work. I have been filing for the last 6 years. It was dicey playing catch up for 2017-2020, but now I use cryptotaxcalculator.io and it's a breeze. The annual CTC subscription can also be claimed as an expense against any 'profits'.

by 21Trillion | 5th Jul 24, 2:02pm 1720144937

Ahh yes. Realized gains for something that is never traded into dollar value.

Why is it if I trade a good for a good, it isn't a taxable event?

by dumbthoughts | 4th Jul 24, 2:52pm 1720061572

Making just about anything you do with crypto a taxable event seems the most absurd aspect to me (whereas vs property investment you just about have to beg and plead with the IRD to tax you it seems). Imagine how many people are out there who dabbled in a few trades here and there via some phone app during one of the crypto booms. Can't imagine they kept any records. Imagine how many people racked up big lists of trades before the IRD had published any guidance. Half those exchanges/crypto assets probably don't even exist any more.

Seems to me the easiest/fairest way to tax crypto would be to have investors calculate the realised cash position versus the cash investment in any given FY (e.g. last FY I invested $10,000 but cashed out $100,000) so you pay tax on the $90k difference. Simple for anybody to calculate, even if they've long lost access to an exchange or data from trades as you'd have references in Internet banking as I'd imagine many people are buying in and cashing out through a much smaller pool of 'end points'.

Instead you've got some weird scenario where the IRD might audit somebody and then be forced to spend significant time trying to trace through some dodgy exchange the gain/loss on trading Shiba Inu for CumRocket (yes, it's a real one).

by J.C. | 4th Jul 24, 3:06pm 1720062387

Yes, but what if you don't "cash out" and simply exchange BTC for USD stablecoin. Should that be a 'taxable event'?

by kaczor47 | 4th Jul 24, 3:51pm 1720065098

The realised cash position vs cash investment is the only sensible way to approach this. IRD rules will never keep up with crypto. Never.

Take staking as an example: native staking is not a taxable event as it is just a lock of funds into a smart contract (receiving staking yields of course is taxable). But liquid staking (which is relatively new) involves a token swap into an LST, and thus is technically a taxable event. This is utterly nonsensical, as the intent in both cases is the same, as is the under-the-hood functionality.

Try discussing these nuances with IRD.

by BigOldWeapon | 4th Jul 24, 3:37pm 1720064276

You're dead right here. The rules are shit, but they are clear. If it was only taxable when converting back to NZD, then folks would simply not cash out. There are several crypto debit cards that allow you to spend USDC, for example.

by J.C. | 4th Jul 24, 3:49pm 1720064941

Try discussing these nuances with IRD.

They wouldn't understand.

by dumbthoughts | 4th Jul 24, 4:23pm 1720067039

The thing is what can you do with your USD stablecoin until you cash that out into real world currency e.g. actual USD, NZD or whatever? I suppose there might be some fringe cases where you could then use your stablecoin holdings as collateral against which to borrow (maybe that isn't even a thing?) but even if that could be done, it's no different in principle to borrowing against equity in your home and we don't tax the equity release do we?

I'd say the vast majority of crypto investors are in crypto to ultimately derive a 'real world' benefit. That benefit being a yellow Lamborghini with the licence plate 'HODL' or a debauched first class trip away with the side piece, or maybe something more modest like a new computer or paying off the mortgage.

Therefore, for simplicity's and compliance's sake it would be so much easier to tax the "intent outcome" (i.e. making cashola by trading TurdPepe for LuxoBucks, then trading that to BTC, then selling BTC to NZD) in the same way that's why we should tax all capital gains on resi investment property because if there is no yield capital gains must be why you were investing.

In other words how many investors traded (or continue to trade) between different crypto tokens because they actually care about the exchange rate between the two? It's all about turning your BTC into ETH into RabidDoge back into ETH back into BTC in order to start with $X and hopefully come out with $X plus.

There might be the odd person who is driven by a sole desire to have a store of wealth that can potentially protect in the event of a currency collapse or whatever, or the odd "true believer" who thinks that one day all exchange will be conducted with Bitcoin as the effective currency, but my anecdotal observation of crypto-related discussions (both online and offline) is the real name of the game is the hope that your 1 Bitcoin goes to a million dollars, or you buy a billion BulldogToken for a buck and hope that one dollar becomes worth $100k.

Under this system compliance would be much easier to ensure from the taxpayer perspective and to enforce from the IRD perspective. Yes there'd be fewer opportunities for the IRD to capture $ of random crypto-to-crypto transactions but it would be so much easier for people to calculate, declare and pay and far less complex if any auditing etc is required.

by Galloleous | 4th Jul 24, 4:36pm 1720067777

You don't understand that the aim of the game is to accumulate as much Bitcoin as possible and never sell it. It is the only absolutly scarce asset in the world and will always appreciate in price when compared to constantly and inevitably devalued government printed fiat currencies.

Spend is dollars, save in Bitcoin.

by the Joneses | 4th Jul 24, 7:20pm 1720077625

"never sell it"

"only absolutly scarce asset in the world"

You sound a bit like your in a cult.

It's just an open source computer program run in a network, that derives real world value based on its current popularity.

by Eschaton | 4th Jul 24, 9:09pm 1720084181

Early email adopters sounded similar

by Zwifter | 5th Jul 24, 10:16am 1720131376

The early adopters were the only ones to make serious money. If you bailed out when it first hit $67K then you did really well. Problem is that as above figures, chances are you had bugger all invested in it anyway. Your average person makes far more money just buying a house.

by J.C. | 5th Jul 24, 2:38pm 1720147105

The early adopters were the only ones to make serious money. If you bailed out when it first hit $67K then you did really well.

Probably more explosive gains have / can be made in altcoins. 100x gains in BTC from now will take some time. Those opportunities exist at times like this.

Anyway, even if one had bought at the previous peak in Nov 2021 and accumulated monthly, you would have returned 93% - far greater capital gains than NZ houses; holding NZD; or the majority of equities.

by mfd | 5th Jul 24, 10:39am 1720132747

Did any of them have the goal of receiving as many e-mails as possible and never sending any?

by BigOldWeapon | 4th Jul 24, 3:45pm 1720064724

Someone tell me why it's OK to speculate on shares and not pay a tax on the capital gain, but speculating on crypto and in fact even trading inside the ecosystem without even touching NZD is taxable. Would love to hear IRD's justification of this double standard.

by kiwikidsnz | 4th Jul 24, 5:09pm 1720069767

Share traders / speculators are liable for & are taxed under IRD rules

by cromulent | 4th Jul 24, 6:26pm 1720074363

Only if they consider you a "trader" is my understanding. For crypto the IRD consider anyone to be a speculator and a trader. Talk about double standards. The intent is the same as crypto - to buy low and sell high. Don't tell me anyone is buying shares for the dividends these days. For me bitcoin is a long term investment for my retirement yet I will be taxed as soon as i sell vs. shares i may have held for the same length of time.

by Hans Brink | 4th Jul 24, 8:40pm 1720082414

That's how I see it cromulent, if you buy shares, bitcoin or whatever whether they go up or down in value is irrelevant. When you sell then the profit or loss goes on your end of year books. Big deal what's the issue?

I guess many go to great lengths to avoid paying their fair share of tax, stuff them I say and good luck to IRD in tracking down any tax dodgers.

And just to add I am in favour of taxing capital gains on point of sale.

by mfd | 5th Jul 24, 10:41am 1720132899

Plenty of people buy shares for the dividends in NZ. Or the promise of future dividends.

Crypto currencies that offer an income do muddy the waters though.

by salamanderhunter | 5th Jul 24, 12:02pm 1720137767

About time they come after the crypto bludgers not putting money into productive enterprise. Tired of people getting wealthy off "investing" in crypto currency instead of putting it into New Zealand businesses.

by LASSET | 5th Jul 24, 1:06pm 1720141587

This is a joke analogy to "investing" in the NZ housing market instead of NZ businesses right?

by 21Trillion | 5th Jul 24, 2:00pm 1720144850

Can't tell if this is satire or not.

You're sick of people investing in an asset that is bringing wealth from overseas into New Zealand?

Have you wondered why so many kiwis are investing in this?

by Qupi | 5th Jul 24, 1:59pm 1720144771

I don't have a horse in this race but it seems crazy that a currency is being taxed. The only reason bitcoin and others have pumped is because the quantity of coins is constrained while fiat money printers go bbrrrrr. Therefore it's really a tax on inflation.

by LASSET | 5th Jul 24, 2:54pm 1720148054

And you've just identified one of the major issues with a capital gains tax. Often over time there is no actual gain in purchasing power due to inflation. But the government wants to tax the money that you managed to not lose.