New Zealand IRD issues rulings on crypto assets

On 30 July 2019, Inland Revenue released a public ruling (the ruling) concerning the income tax treatment of "crypto assets" issued by an employer to an employee in connection with the latter's employment.

Crypto assets are digital assets that use cryptography and blockchain technology to regulate their generation and to verify transfers (commonly referred to as "cryptocurrencies").

Fringe benefit tax on crypto assets

Broadly, the ruling states that:

  • a fringe benefit is provided to an employee who is employed by the employer at a specified future date when the employee becomes entitled to the crypto assets;
  • where the employer is selling its crypto-assets to arm's length buyers at the time that the crypto-assets are provided to the employee, the value of the fringe benefit is the market value of the crypto-asset; and
  • where there is no market value, the Commissioner of Inland Revenue will determine the value of the fringe benefit.

The ruling applies where:

  • the employer issues crypto assets, for example, through an initial coin offering, an initial exchange offering, a security token offering or a token generating event;
  • the employee will receive the crypto assets only if he is still employed by the employer at a specified future date; and
  • the employee cannot sell or otherwise transfer the crypto assets until the specified future date.

The ruling applies only to salary and wage earners.

The ruling does not apply where the crypto asset provided is a "share" for income tax purposes that is received under an "employee share scheme".

The ruling applies for a period of 3 years from 30 July 2019 and follows two earlier rulings on salaries and wages, and bonuses, paid in crypto assets.

Salaries and wages paid in crypto assets

The ruling treats the payment of remuneration to an employee in crypto assets as "PAYE income payments", which are subject to the PAYE rules, in circumstances where they:

  • are for services performed by the employee under an employment agreement;
  • are for a fixed amount; and
  • form a regular part of the employee's remuneration.

The ruling applies only where the crypto assets being paid:

  • are not subject to a "lock-up" period;
  • can be converted directly into a fiat currency (on an exchange); and either:
    • a significant purpose of the crypto asset is to function like a currency; or
    • the value of the crypto asset is pegged to one or more fiat currencies.

The ruling also applies only to salary and wage earners and does not apply where the crypto asset provided is a share for income tax purposes and is received under an employee share scheme. The ruling also applies for a period of 3 years from 1 September 2019.

Bonuses paid in crypto assets

The ruling on bonuses paid in crypto-assets states that the payment of an amount of crypto-assets to an employee in connection with his employment as an incentive or bonus is a "PAYE income payment", and therefore subject to the PAYE rules.

  • The ruling also applies only where the crypto assets being paid:
  • can be converted directly into a fiat currency (on an exchange); and either:
    • a significant purpose of the crypto assets is to function like a currency; or
    •  the value of the crypto assets is pegged to one or more fiat currencies.

Again, the ruling applies only to salary and wage earners and does not apply where the crypto asset provided is a share for income tax purposes that is received under an employee share scheme. 

The ruling also applies for a period of 3 years from 1 September 2019.

Crypto-assets and employee share purchase schemes

Inland Revenue is currently finalizing a public ruling on the application of the employee share scheme tax rules to employer-issued crypto-assets provided to an employee.

Full details are available on the IRD website

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