The rise and rise in the apparent value of crypto-currencies has seen interest in the various different individual currencies increase dramatically over the last year.
In December last year Rhodes Donald from Polson Higgs Wealth Management published an article looking at this new trend amid the increased interest and what Crypto-Currency actually is.
One other person who is likely to begin taking an interest as we draw closer to 31 March is the Commissioner of Inland Revenue. For some people the year has seen a significant gain, albeit potentially unrealised, and this will be of interest for the Revenue Department. For others they may have seen a loss over the year as the volatility of these currency continues. For these people they may want to consider whether this loss is able to be claimed.
With the rise in these currencies only really starting to gain real traction over the last financial year these are questions which are yet to be heavily tested under the New Zealand taxation system.
The ATO in Australia has had a go at trying to apply their taxation laws to crypto-currency with limited success in finding a definitive conclusion other than to say they are unlikely to fall within their financial arrangement rules, which is where most currency fall. Whether the IRD finds the same conclusion is still and open question.
The other likely outcome is that crypto-currency would be considered personal property acquired with an intention of disposal and taxed as such. This would follow similar analysis as Gold Bullion and some Shares which the IRD have already considered. Given that Crypto-Currency does not provide any return and its only real use at this stage is to be disposed of for other currency or property this type of analysis is one which has some merit.
Given the significant changes in value at stake what is clear is that the taxation of these holdings is something that is likely to become highly relevant with 31 March coming we understand the IRD are working on this issue so it would be unwise for holders of crypto-currency to ignore the issue.