IRD has a warning for cryptocurrency investors

Inland Revenue is reminding cryptocurrency investors of their tax obligations. Photo/123RF

The Inland Revenue Department is reminding cryptocurrency investors of their tax obligations in new guidance released today.

For tax purposes cryptocurrencies - essentially money that exists only in digital form - would be treated like property, Inland Revenue (IRD) said.

Its customer segment leader Tony Morris said although trading in cryptocurrencies happened in a digital realm, tax obligations still applied in New Zealand.

"Just like with property - when you acquire cryptocurrency for the purpose of selling or exchanging it, the proceeds you make from selling it are taxable," Morris said.

"The purpose is hard to argue here since with Bitcoin and other cryptocurrencies, generally the only time they produce an income is when they change hands."

Morris said IRD had put out the information in response to questions about tax responsibilities on its site.

Bitcoin, Ethereum, Ripple and Litecoin are some of the well-known examples of cryptocurrencies.

Such currencies were usually encrypted using Blockchain technology that regulated the generation of new units and verified fund transfers.

It operated independently of any central bank and could be transferred without going through a bank.

The IRD said tax was also applied when one cryptocurrency was swapped for another, reminding investors that they didn't need to change the currency to dollars for tax to be applied.

Similarly if cryptocurrency was received as payment for goods or services, this was also considered income and was taxable.

"It's important to keep good records of your transactions as this information will be useful when filing a tax return," Morris said.

"Let Inland Revenue know if you think you haven't got your past tax returns right so that it can be corrected.

"Operating in the digital world doesn't absolve you from your tax obligations," he said. "It also doesn't mean your activity is untraceable."