Cryptocurrency Investments
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Articles by Anna Loginova
Over the last year we have noticed that a lot of clients are choosing cryptocurrency as an alternative for their investment strategies.
Anthony Strevens discussed the tax implications around cryptoassets in his November 2020 blog, so I won’t go into much detail here. As a summary: the profit is taxable and the losses are deductible if you purchase cryptoassets for the purpose of disposing them, carry on a profit-making scheme, or trade in cryptoassets, whether part time or full time.
Any taxable income you make from cryptoasset activities must be included in your annual tax returns. This includes a calculation of the NZD value of the cryptoassets transactions, and income and expenses associated with this.
Let’s illustrate with an example to show how easy it is to get this wrong. In this scenario, an investor purchases 500 “GRAcoin” (made up cryptoasset for this example) for $500,000. Later that year they sell some, but not all, of their GRAcoin for $400,000. As shown in the table below, Investor 2 thinks that they have made a loss of $100,000 and therefore there will be no tax to pay. However, this is incorrect – Investor 2 has only compared the amount they paid for all of the cryptoassets to the amount they received from selling part of the holding only. They have failed to take into account that they still own 120 GRAcoin. In reality, they have made a gain of $20,000 (because they sold 380 GRAcoin that cost $380,000, for $400,000), as shown in Investor 1’s column, and need to pay tax on the $17,500 net profit.
As per the example above, it is very important to get the calculations correct, as the outcomes are very different, and you could end up in arrears with the IRD.
If you require any assistance with the tax implications around cryptoassets, please get in touch with us.
Anna Loginova
Partner
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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