Under New Zealand’s GST Act, there are only three types of things that can be bought or sold – goods, services and money.
However crypto isn’t considered money and doesn’t meet any of the other classifications for GST exempt goods or services – ergo GST is payable.
Despite this, income tax also applies. Go figure.
The New Zealand Inland Revenue Department (IRD) is now proposing dropping the GST on most cryptocurrencies, but keeping the income tax. It’s similar to a move Australia made on its own GST back in October 2017 and one proposed in Singapore.
“The current GST rules provide an uncertain and variable GST treatment, making using or investing in crypto-assets less attractive than using money or investing in other financial assets,” the IRD Policy Issues paper issued yesterday said.
Instead it proposes treating the supply of crypto as akin to the supply of money.
GST would continue to apply to supplies of goods and services purchased with crypto and the exemption also wouldn’t apply to services related to crypto assets (like mining, exchange services and advisory functions).
They’ve been talking about doing this at least as far back as March 2018, but this paper is the first concrete step toward changing the GST act which is a lengthy process.
The IRD policy issues paper gives the impression the GST/crypto thing is a bit of an accident as the rules were invented before crypto and not updated.
“Because of their innovative nature, [cryptocurrencies] will often also have different features to … other investment products,” the paper said.
“This means that some existing tax rules can be difficult to apply, involve very high compliance costs or may provide policy outcomes for some crypto-assets that lead to over-taxation compared to other alternative investment products.”
The paper also examines whether different types of tokens should or should not attract GST, however it would be a bit of a nightmare to classify thousands of different cryptocurrencies individually.
Instead it argues for “developing a broad definition of crypto assets” that excludes most of them from GST.
However the definition would be drafted in a way to ensure the exiting financial rules would continue to apply to crypto assets that are similar to debt arrangements.
While businesses dealing in crypto are paying GST, it’s unclear exactly how many crypto users in New Zealand actually bothering paying the GST when buying tokens overseas.
The Easycrypto.nz site says the onus is usually on the seller to collect GST, but when crypto is purchased overseas the buyer is responsible for declaring the value of the imported goods and paying GST on it.
It also argues they may not even need to: “Given the non-physical nature of cryptocurrencies though, it is potentially unclear as to whether this provision would apply.”
If you’re in New Zealand and want to make a submission, you’ve got until April 9 to offer your opinion on the best way forward.
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