What’s Cooking in Crypto Taxation?

Recently, New Zealand’s Inland Revenue Department (IRD) turned heads with its binding rulings on how to deal with salaries and bonuses paid in cryptocurrencies. Falling under section 91D of the Tax Administration Act of 1994, this guidance is like that friend who only shows up at the party but never dances—the rules are there, but the excitement might be lacking.

Who Gets to Play in the Crypto Sandbox?

This tax ruling is specifically tailored for employers and employees. Bad news for the self-employed, though. If you’re providing services for a fixed amount as part of your regular salary, this ruling is your golden ticket—or perhaps just a very shiny pebble in a less than glamorous casino. The IRD clarifies that these crypto salaries aren’t treated as currencies but rather as assets. Yes, those crypto coins you thought were wallet-sized money are now just that annoying thing you can’t seem to cash in easily.

Crypto as Salary: The Nitty-Gritty

In this brave new world of digital payments, if you’re earning crypto, be prepared for some tax duties. The guidance states that if you’re receiving crypto assets as part of your salary or a bonus, they will be subject to the dreaded pay-as-you-earn (PAYE) tax and possibly Fringe Benefits Tax (FBT) if they don’t fit some elite criteria. To qualify for PAYE, these digital assets should not have a “lock-up” period, must be convertible to fiat currency, or their value should be pinned to traditional currencies. It’s like a club with a strict dress code: if you don’t fit the criteria, you won’t get in!

What’s Groundbreaking and What’s Just Ground?

Anyone yelling “revolutionary” is going to be disappointed. In fact, this ruling isn’t particularly groundbreaking when compared to the United States Internal Revenue Service’s (IRS) 2014 guidelines on virtual currency as wages. Spoiler: They confirmed that virtual money counts as wages too! Yet, it’s essential to acknowledge that the IRD’s detailed analysis indicates that tax regulators are finally waking up to the realities of the crypto universe. It’s about as riveting as watching paint dry if you’re hoping for dramatic changes, but it’s a step towards clarity.

Oh, What Could Have Been: The Proposal for Crypto Tax Payments

Back in September 2018, some die-hard crypto enthusiasts pitched a proposal for the IRD to accept taxes paid in cryptocurrency. They argued that this would make compliance more appealing, especially since converting crypto assets into fiat for tax payments can be like trying to get water from a stone. Yet here we are, with a ruling that keeps crypto strictly as a taxable asset instead of breaking any exciting new ground.

Looking Ahead: The IRS, What Will You Do?

With New Zealand leading the charge (sort of), all eyes are now on the IRS to step up and provide clearer guidance of their own. Hopefully, it won’t take another eight years! If they do, it will feel more like watching a thrilling movie than reading a dull tax manual.

The Conclusion: Embrace the Quirks

The outlook for cryptocurrencies in terms of legality and acceptance may not be as undeniable as some might hope. But at least now, employees have a clearer framework to work within. If you’re one of those lucky duckies getting paid in crypto, it might not be the dream scenario you envisioned, but take heart! The wheels of regulation are finally in motion, albeit at a snail’s pace. Remember to keep those receipts—digital or otherwise!