Cryptocurrency investors reminded of tax obligations

Bitcoin, Ethereum, Ripple and Litecoin are some of the more well-known examples of cryptocurrencies, which is essentially money that exists only in digital form.

The currency is usually encrypted using Blockchain technology that regulates the generation of new units and verifies fund transfers.

It operates independently of any central bank and can be transferred without going through a bank.

And now, according to new guidelines published by Inland Revenue, cryptocurrencies will be treated like property in terms of tax.

Inland Revenue customer segment leader Tony Morris, who oversees this work programme, says trading in cryptocurrencies may happen in a digital realm but tax obligations still apply in New Zealand.

"Inland Revenue has responded to requests for guidance by issuing some common questions and answers on our website so that everyone knows their responsibilities," adds Morris.

"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.

"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.

Tax is also applied when one cryptocurrency is swapped for another. You don't need to cash out to dollars to create a tax obligation.

Tax rules for foreign exchange don't apply when it comes to cryptocurrencies.

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

"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. It also doesn't mean your activity is untraceable.