It’s even now hitting some investors with “gross carelessness” penalties worth up to 100% of the tax owing.
“They’re saying, ‘Hey, you should have known better,’” Doyle says.
IRD estimates 355,000 New Zealanders have traded roughly $36 billion worth of crypto across 57 million transactions – making it obvious why they’re focused on it.
Doyle says Inland Revenue already had data from New Zealand crypto exchanges showing who converted Kiwi dollars into cryptocurrency, but a new international reporting framework means authorities are now gaining access to even more information from overseas exchanges.
“It would be pretty easy to see from those records who’s trading the most, what’s gone in in terms of New Zealand dollars in and out, and what’s in their tax returns,” he says. “And then it’s very easy pickings for them.”
What catches people out is that IRD effectively starts from the assumption that people buy crypto hoping it will go up in value.
That’s because unlike a rental property or shares, which you may buy to generate rental or dividend income, crypto has “no tangible use”, making it harder to argue they bought it for any reason other than to make a profit.
“If you buy something with the intention to dispose of it, the proceeds are going to be taxable income,” Doyle says.
Investors can also get caught because every crypto trade can trigger tax on profits, not just cashing out into New Zealand dollars.
“It’s also when you sell one token for another,” Doyle says.
That can create nightmare scenarios where investors run up large tax bills based on making profits on one cryptocurrency but then invest those profits in another token that later crashes in value.
“We’ve seen some really unfortunate situations where they’ve had millions of dollars of profits, they’ve owed over half a million dollars of tax, and then the market’s declined ... to, in some cases, like 250 grand – and they still owed half a million dollars in tax.”
Doyle says the worst thing people can do now is ignore it and hope IRD won’t notice.
“As soon as you can come to terms with that, and go through that process, you can learn from that process and then have a clean slate going forward.”
Watch or listen to the full episode of The Prosperity Project for more.
The Prosperity Project is hosted by Nadine Higgins, an experienced broadcaster and financial adviser.
Follow the show at iHeartRadio, Apple Podcasts, Spotify or wherever you get your podcasts. New episodes are released every Monday.
