For quite a while Cryptocurrency enthusiasts have been suggesting and playing with the idea that Bitcoin and Gold are quite similar in terms of investment. Added into the eclectic mix is New Zealand’s Inland Revenue Department, IRD ( the national equivalent of the US Internal Revenue Service) as they consider cryptocurrencies to be analogous with gold bullion, at least in terms of their treatment for income tax purposes.
For Tax purposes, Cryptocurrency is property
IRD has been explicitly stated:
“for tax purposes, cryptocurrency is property, not currency.” They specificed the reason for this distinction as “this means foreign currency gain or loss provisions do not apply.”
The IRS (US) has taken a similar view, both have provided clear guidelines in the question-and-answer form on taxations related to cryptocurrencies. By considering digital currencies as property, both the IRD and IRS view these holdings just like any other asset. In a scenario, where cryptocurrencies are treated as an equity for the express purpose of selling or exchanging, then the profits from the sales are taxable. Similarly, if cryptocurrencies are received as a payment for goods or services provided, it is taxable as per business income.
This is because “bitcoin and similar cryptocurrencies generally don’t produce an income stream or provide any benefits, except when they’re sold or exchanged. This strongly suggests that cryptocurrencies are generally acquired with the purpose to sell or exchange them.”
Read more: Crypto Expert: “Bitcoin is Used as Digital Gold
Regardless of the currency in which cryptocurrencies are transacted, the onus of maintaining relevant records and accurate report of all taxable transactions is on the taxpayer. Using digital currencies to carry out unobserved transactions is simply tax evasion. In simpler terms, it is not different from conducting transactions in cash or barter to avoid tax liability.
These questions surrounding taxes and cryptocurrencies arose in New Zealand after it was reported that employers could be paying employees in cryptocurrency. Which would obviously threaten the tax revenue, in the same way, that internet sales of digital goods consumed in New Zealand have threatened the country’s ability to collect a Goods and Services Tax.
The real problem that IRD and IRS are facing is not the emerging technologies such as cryptocurrencies, but the internationalization of transactions and the fragmentation of the classical employment relationships. It is safe to assume that in future, an individual will be a portfolio worker who has different sources of income originating from activities in many different countries and who buys goods and services from providers over an even wider range. Obviously, historic taxing systems might not be fit to accommodate modern day requirements.
As stated above, the ultimate responsibility of reporting their cryptocurrency transaction and the associated liabilities will rely on the Investor/taxpayer.
The idea of expressing one’s views and reviews through words is beyond intriguing. What started as a creative let out has now become a passion and a profession for Arshmeet K Hora. In her own words ” with every word, every article that I write, my passion towards this medium has grown stronger.” Arshmeet covers latest crypto news and updates as well as what happening new revolving around Blockchain Technology.