The Inland Revenue Department of New Zealand has re-ignited its interest in crypto-assets and its investors after it asked companies dealing with them to hand over customer details. The guidelines in question present a set of requirements which include the customer’s personal details, as well as info on the type of crypto-assets they are holding.
Understandably, the development wasn’t exactly welcomed the entities based in the country. Janine Grainger, CEO of New Zealand-based Easy Crypto, was one of them. Claiming that she was disappointed, but not surprised, she said,
“I guess [IRD] is just widening its net of the tax base and crypto assets are something that is definitely growing in popularity and we’re seeing a huge increase in New Zealanders getting involved.”
According to the exec, the requirement of handing over customer’s personal information is ‘heartbreaking’ as the tenets of cryptocurrency are freedom, autonomy, and privacy.
The new guidance comes on the back of guidelines issued a few weeks ago, guidelines that themselves seemed to have quite a few issues. In fact, according to Campbell Pentney, special counsel at the law firm Bell Gully,
“It doesn’t deal with some of the more pressing questions, for example, in blockchains, you have what are called forks, a fork is when a chain splits in two and then you have two different coins and then the question is if you sell both are you taxed in the same way for both of those coins?
Such developments are very interesting to see, and a parallel can easily be drawn with developments elsewhere. The IRS too was unclear about the treatment of crypto-assets earned as a result of hard forks, until the new Cryptocurrency Tax Laws 2020 stated that a plain hard fork would not result in taxable income, since the hard fork did not result in a taxable event.
Ergo, at face value it would seem that the IRD is unable to keep up with the pace at which crypto-technology is evolving. In a space where technology is constantly evolving, hard and fast tax rules are less applicable and more susceptible to loopholes. Hence, it seems like from a regulatory standpoint, oversight may be an inevitable by-product of growing crypto-adoption.
It doesn’t help that there is little to no standardization with respect to a governing legal entity’s definition of ‘crypto-assets.’ In New Zealand, for instance, crypto-assets are treated like property, just like in the U.S. In the U.K, however, it is treated as foreign currency while in Germany, it is treated as private money.
Countries like Singapore and Malaysia currently do not tax long-term capital gains, and as such, holders of cryptocurrencies are exempt from paying tax on their crypto-assets altogether. These vastly different tax regulations may as well result in individuals and crypto-companies moving their funds out of their countries and into countries where they are taxed more favorably.