Last week IRD released Technical Decision Summary TDS 24/22 regarding transitional residency and cryptoassets.

The Taxpayer in TDS 24/22 was a previous NZ resident looking to return to NZ. They held cryptoassets in overseas centralised exchanges and decentralised exchanges (DEX). The assets were not intended to be a trading or business activity, being held long term, but may have been sold from time to time to rationalise the overall portfolio.

The Taxpayer sought a ruling on two issues:

1) Transitional residency
2) That the sales of cryptoassets would be exempt income

The Tax Counsel Office (TCO) was not asked to rule on whether the sales were income.

In this particular case, it was found that the Taxpayer qualified for transitional residency.

As most foreign-sourced income is exempt during the transitional residency period, the question of source was relevant.

TCO considered the potentially relevant source rules:

  • Business carried on in NZ: YD 4(2)
  • Contracts made or performed in NZ: YD 4(3)
  • Property situated in NZ: YD 4(12)
  • Income from a trust fund that has a source in NZ: YD 4(13), or
  • Any other source in NZ: YD 4(18).

In this case, it was determined that any income derived from the sale of cryptoassets held on overseas centralised exchanges or DEXs was not sourced in NZ.

It is important to note that TDSs are not binding on the Commissioner. Source issues generally can be complex, and each case will always turn on its own facts.

If you have any questions regarding the tax treatment of cryptoassets, the source rules, or transitional tax residency, please get in touch with one of the team.