Taxation of Crypto Currency

Question 1

What is a crypto currency?

Answer 1

A digital asset you can buy or exchange or by participating in an ICO and which you can hold in a digital “wallet”.

Question 2

Crypto currency is a _____________ you can buy or exchange or by participating in an ICO and which you can hold in a digital “wallet”.

Answer 2

Digital asset

Question 3

Crypto currency is a digital asset you can ____________ or exchange or by participating in an ICO and which you can hold in a digital “wallet”.

Answer 3

Buy

Question 4

Crypto currency is a digital asset you can buy or ____________ or by participating in an ICO and which you can hold in a digital “wallet”.

Answer 4

Exchange

Question 5

Crypto currency is a digital asset you can buy or exchange or by participating in an _________ and which you can hold in a digital “wallet”.

Answer 5

ICO

Question 6

Crypto currency is a digital asset you can buy or exchange or by participating in an ICO and which you can hold in a digital _______

Answer 6

“wallet”.

Question 7

What does ICO stand for, for the purposes of crypto currency?

Answer 7

An Initial Coin Offer

Question 8

For the purposes of crypto currency, what is the acronym for Initial Coin Offer?

Answer 8

ICO

Question 9

Other than a “coin” what is a crypto currency often called?

Answer 9

A token.

Question 10

Other than a “token” what is a crypto currency often called?

Answer 10

A “coin”.

Question 11

How are ICOs being used?

Answer 11

As a means of raising capital for business or projects.

Question 12

What is fiat money?

Answer 12

Currency that a government has declared to be legal tender, but it is not backed by a physical commodity.

Question 13

What is the value of fiat money derived from?

Answer 13

The relationship between supply and demand rather than the value of the material that the money is made of.

Question 14

Why are all currencies now considered to be fiat currencies?

Answer 14

Because there are no existing currencies backed by commodities.

Question 15

Most counties maintain supplies of gold. Why does this not mean that their currencies are considered to be backed by commodities?

Answer 15

Because the gold is not used to back the value of the currencies.

Question 16

When ICOs are used as a form or currency, what might the issuer offer units of the ICO in exchange for, other than money (fiat)?

Answer 16

Receipt of units of an existing crypto currency.

Question 17

If under an ICO, the issuer offer units of the ICO in exchange for units of an existing crypto currency, what existing crypto currencies are typically used?

Answer 17

Bitcoins or Ethereum

Question 18

What has IR informally advised concerning whether or not crypto currencies are treated as financial arrangements?

Answer 18

That in most cases they would not be treated as financial arrangements.

Question 19

Is IR not treating crypto currencies as financial arrangements consistent with the position of the ATO?

Answer 19

Yes

Question 20

What is the tax effect of crypto currencies not being treated as financial arrangements?

Answer 20

They should not come within the scope of New Zealand’s FIF rules.

Question 21

Would crypto currencies be subject to income tax when they were converted into money (fiat) in NZ?

Answer 21

Yes realised gains on sale, exchange or conversion of crypto currency would likely be subject to NZ income tax.

Question 22

Gain on sale, exchange or conversion of crypto currency might be considered taxable in New Zealand because it was acquired for the purpose of disposal or because what?

Answer 22

The person deals (is in the business of dealing) in crypto currency.

Question 23

Gain on sale, exchange or conversion of crypto currency might be considered taxable in New Zealand because the person deals (is in the business of dealing) in crypto currency or because what?

Answer 23

The crypto currency was acquired for the purpose of disposal.

Question 24

What is the onus on the taxpayer to do if they wish to assert that money gained from gain on sale, exchange or conversion of crypto currency as part of a particular transaction, is not income?

Answer 24

To demonstrate that a particular transaction in crypto currency is not taxable.

Question 25

What is IR’s treatment of crypto currency considered to be likely to be consistent with?

Answer 25

IR’s treatment of gold bullion.

Question 26

What is IR’s income tax treatment of gains on the sale of gold bullion?

Answer 26

That it is taxable in most cases.

Question 27

Other than the rights of the participants in the ICO and the regulatory characterisation of the issuance what else is likely to be considered when considering the tax treatment of ICO proceeds?

Answer 27

How the transaction is treated for accounting purposes.

Question 28

Other than the rights of the participants in the ICO and how the transaction is treated for accounting purposes, what else is likely to be considered when considering the tax treatment of ICO proceeds?

Answer 28

The regulatory characterisation of the issuance.

Question 29

Other than the regulatory characterisation of the issuance and how the transaction is treated for accounting purposes, what else is likely to be considered when considering the tax treatment of ICO proceeds?

Answer 29

The rights of the participants.

Question 30

What are “enterprise rights” granted under an ICO considered to be similar to?

Answer 30

Shares in a company.

Question 31

Where an ICO grants “enterprise rights” what are the gain proceeds from an ICO likely to be treated as?

Answer 31

As being capital in nature.

Question 32

What are “utility” rights” granted under an ICO?

Answer 32

Access to a new product or service.

Question 33

Where an ICO grants “utility rights” what are the gain proceeds from an ICO likely to be treated as?

Answer 33

A deferred revenue liability which is released as revenue to the profit and loss account when the token holders utilise the product or service.

Question 34

Crypto currency may be considered not to be money or some other financial service which is otherwise exempt from GST but more akin to what?

Answer 34

A voucher or a barter transaction.

Question 35

Are voucher or barter transactions normally subject to GST?

Answer 35

Yes

Question 36

What issue might there be with respect to input credits and crypto currencies?

Answer 36

Whether you can claim a GST input credit and how you would support this in the absence of a tax invoice.

Question 37

For crypto currency sales, what is a GST issue concerning determining where your counterpart is located?

Answer 37

How do you determine whether your counterpart is off share and whether you can zero rate?

Question 38

What issue concerning market value might there be concerning crypto currencies and GST?

Answer 38

How you determine the value of a supply in a highly volatile market.

Question 39

What will the NZ government likely do with respect to crypto currency and GST?

Answer 39

Enact legislation to exempt crypto currency from GST.

Question 40

How does Australia treat crypto currency for GST purposes?

Answer 40

It exempts it.

Question 41

How does the UK treat crypto currency for VAT purposes?

Answer 41

It exempts it.