IRD may treat crypto-currencies like gold

  • 22/12/2017
IRD may treat crypto-currencies like gold
Photo credit: Getty

The Inland Revenue Department is working on guidelines for the tax treatment of crypto-currencies.

It says they may treat it similar to the proceeds of gold bullion sales that had been held for profit.

An IRD spokesman said preparatory work was "underway on issuing public guidance regarding the tax treatment of crypto-currencies".

The department declined to comment on the implications for creditors of Bitcoinica, the Auckland-based currency trader put into liquidation in 2012, saying it was unable to comment because the liquidation of the offshore company that held much of its assets was on-going.

The IRD spokesman referred BusinessDesk to a note the department issued on the treatment of proceeds from the sale of gold bullion.

It said under the Income Tax Act, proceeds from the disposal of gold, as with any personal property, would in most instances be deemed income if acquired "for the dominant purpose of disposal".

"In the case of gold bullion, the commissioner considers that this is particularly so, as bullion does not provide annual returns or income while it is held, nor does it confer other benefits," the note said.

The taxpayer would be able to deduct costs such as the purchase cost and expenditure related to the acquisition such as foreign exchange charges, the note says, in an example of a gold and silver buyer.

Bitcoinica's cash and bitcoin assets are held in accounts on the Mt Gox exchange in Japan, which was the world's largest bitcoin trading exchange when it collapsed in early 2014.

Late last month the trustee said some Mt Gox creditors had filed a petition in the Tokyo District Court to begin civil rehabilitation proceedings.

If successful it could open the door for creditors to recover their bitcoins at the prevailing market levels.

At current value, Bitcoinica creditors would be sitting on bitcoins worth about US$1.6 billion (NZ$2.3b).

PKF said it has received advice on the legal status of bitcoins under New Zealand law, the valuation of creditor claims and creditor entitlements in the liquidation.

It plans to apply to the High Court for directions, "primarily in relation to the valuation of creditor claims and the proposed method of distribution of Bitcoinica's assets".

A spokesman for the Reserve Bank said crypto-currencies would be included in the bank's major review of its currency operating model and supporting infrastructure, now underway.

"This project is focused on demand drivers, distribution models, and cash substitutes," external communications adviser Angus Barclay said.

"It includes looking into crypto-currencies, blockchain technology and distributed ledgers.

"The Reserve Bank doesn't regulate bitcoin. Whatever legal status bitcoin has is under ordinary law relating to contracts, tax obligations etc."

The central bank issued a note on crypto-currencies last month and among the points made were that they "raise consumer protection, anti-money laundering, and counter-terrorism financing concerns."

The Financial Markets Authority also warns using crypto-currencies "may make you a target for scammers or businesses selling high-risk investments."

They aren't widely accepted and often trade on unregulated, online-only exchanges.

Asked about the legal status in New Zealand, a spokesman said bitcoin "is a payment system. It is not fiat currency/legal tender".

"The FMA treats crypto-currency as 'money's worth' and considers the transfer of crypto-currency or the conversion of fiat currency into or out of crypto-currency as the provision of a type of financial service known as a 'value transfer service' for the purposes of New Zealand law," the spokesman said.

The FMA may also treat any crypto-currency as a security for the purposes of the Financial Markets Conduct Act."

NZN