Over the past decade, cryptocurrency, digital assets, or cryptoassets (crypto), have grown in both value, variety and awareness.
Crypto continues to expand and define itself as a legitimate asset class – one now with a combined market cap of over USD 4.1. trillion, even surpassing the market gap of giants such as Apple (APPL) with about USD 3.4 trillion – and governments worldwide are grappling with how best to regulate and tax this evolving space.
The OECD Centre for Tax Policy and Administration noted in a comprehensive report that crypto presents policymakers with unique challenges. These stem from their decentralised nature, pseudo-anonymity, valuation complexities, hybrid features that combine aspects of financial instruments and intangible assets, and the fast-paced evolution of both the technology and the assets themselves.
With about 14% of New Zealanders surveyed saying they own or previously owned cryptocurrencies in their investment portfolios, the New Zealand Government (Government) and New Zealand’s Inland Revenue Department (IRD) are unsurprisingly committed to ensuring tax compliance for those engaging with crypto. To help taxpayers, the IRD has helpfully provided guidance on the tax treatment of crypto.
While the Government often promotes New Zealand’s tax system as attractive due to the absence of a general capital gains tax, the IRD’s position on crypto suggests somewhat the opposite when it comes to digital assets. In contrast to more progressive jurisdictions like Wyoming and Portugal – which have developed clear and supportive legal frameworks – New Zealand has taken a comparatively stricter approach to taxing crypto, similar to that of Australia.
Classifying crypto: not mere information, but property
In Ruscoe & Moore v Cryptopia Limited 2020 (in liquidation) [2020] NZHC 728, the New Zealand High Court rejected the argument that crypto was mere information. Instead, the Court found that crypto is property and capable of being the subject matter of a trust.
Consistent with this position, the IRD’s crypto guidance page makes it clear that crypto is not free from taxation. Crypto is treated as property for tax purposes, and tax treatment is determined by how the asset is used and its characteristics, not by its name. Crypto are not legal tender. If they were treated as a financial arrangement akin to currency, certain holdings could be taxed on unrealised gains depending on their value held.
This classification as property aligns with international practice – the United States Internal Revenue Service’s (IRS) guidance treats cryptocurrency as property and applies capital gains tax to disposals. Likewise, both Australia and the United Kingdom tax crypto gains under their respective capital gains tax frameworks.
Acquisition and disposal of crypto
Unfortunately for both active crypto traders and long-term holders (HODLers’), it is generally safe to assume that the IRD will treat profits from both trading and investing as taxable.
The IRD emphasises that purpose matters:
- “If your purpose for getting cryptoassets is to sell or exchange them, you’ll need to pay income tax when you do.”
- “If you make a loss when you sell your cryptoassets you may be able to claim this loss.”
For those who do not hold on with ‘diamond hands’ through periods of volatility and instead sell crypto for fiat currency (such as New Zealand dollars) or hastily convert assets like bitcoin (BTC) into stablecoins (such as tether (USDT)), there’s a good chance you’ll have triggered a taxable event or potentially be in a position to claim a tax-deductible loss. Crypto insolvencies like Dasset or FTX may be a basis to claim a tax loss.
What many retail investors may not fully realise is that according to the IRD: “Tax is also applied when one cryptocurrency is swapped for another. You don’t need to cash out to dollars to create a tax obligation.”
This guidance is particularly relevant for those who use mainstream cryptocurrencies like bitcoin (BTC) as an ‘on-ramp’ to access other altcoins, for example, purchasing BTC via Swyftx, then using that BTC to acquire various altcoins within the same platform. Such transactions are still considered disposals for tax purposes.
Why intention matters: Dominant purpose test
Because crypto is classified as property, section CB 4 of the Income Tax Act 2007 (‘ITA’) is relevant: “An amount that a person derives from disposing of personal property is income of the person if they acquired the property for the purpose of disposing of it.”
The key factor here is purpose, which plays a central role in determining whether any gains are taxable. Specifically, the purchaser’s intention at the time of acquisition is what matters, not their mindset at the time of sale. The purpose of disposal must be the dominant purpose, and this is assessed subjectively.
Where crypto is acquired through a legal entity such as a company or trust, it is the collective purpose of the decision-makers within that entity that will be examined. If there are multiple purposes, taxability is dependent on whether dominant intent was to sell or dispose of the asset. If so, then any resulting gains will be treated as taxable income.
Example: You’ve just heard that Trump Crypto (TRUMP) is up so you buy $1,000 NZD of TRUMP with the intention of selling it quickly to make a fast profit. You’ve also heard that Trump is posting on Truth Social
about TRUMP and it is expected the price will ‘moon’ further as he is ‘shilling’ it. Once you convert your TRUMP back into NZD or to another crypto, the gains or losses on TRUMP are accessible or claimable because the dominant purpose in your purchase of TRUMP was to sell or dispose of it. If you sold or transferred your $1,000 NZD of TRUMP for $2,000 NZD, you would pay tax on the $1,000 NZD profit.
The IRD’s approach to taxing crypto appears to closely reflect the reasoning in CIR v National Distributors, [2] the leading case on the predecessor to section CB 4 of the Income Tax Act. In that case, the Court was asked to determine whether profits from the sale of certain shares were assessable as income. With the exception of two parcels of shares that were purchased for specific purposes unrelated to resale, the Court held that the remaining shares were acquired with the dominant purpose of sale or disposal, making the gains taxable.
The taxpayer (who was director of National Distributors that had purchased the shares), gave evidence that the shares were acquired because they were attractive long term, and the taxpayer anticipated some growth and the potential to generate capital for the shareholding family through their investing shares. The Court at the first instance accepted this explanation, viewing the purpose as being the management of a portfolio to keep up with inflation. However, the appellate Court disagreed, drawing a key distinction between motive and intention by saying that if the taxpayer’s primary purpose in acquiring the property is to sell it in the future at a price that matches or exceeds the purchase price after adjusting for inflation, then the statutory purpose is still considered to be resale – even if the underlying motive is simply to safeguard savings against inflation. [3]
National Distributors considered two earlier decisions which explored the distinction between motive and purpose.[4] In both cases, the taxpayers had purchased stock in England using sterling then promptly sold it in New Zealand for dollars, instead of transferring funds through conventional banking channels. While the underlying motive was to move funds from England to New Zealand, the dominant purpose of acquiring the stock was found to be resale, making the gains assessable. While the motive for the taxpayers was to remit funds from England to New Zealand, the dominant purpose for purchasing the stock was to sell it.
Although the facts of those cases were specific, they serve as a useful analogy to the IRD’s stance that exchanging one cryptocurrency for another (like, acquiring ethereum (ETH) and then selling or partially disposing of it to purchase polkadot (DOT)) may signal a purpose of disposal.
In assessing investment intent, Justice Richardson in National Distributors makes several noteworthy observations:
- He says that a person acquiring an asset typically does so either with the intention of eventually earning income from it or eventually selling it for a profit. While these two purposes – retention for income and resale – are not mutually exclusive, it is usually possible to identify which of the two was the dominant purpose at the time of acquisition.
- In some cases, the primary purpose of holding the asset may not be for income generation but rather to achieve other objectives, such as accumulating a large estate, or preserving the real value of capital over time. Acquisitions may also be driven by personal motives or external family considerations.
- However, where the taxpayer’s goal is economic gain and the asset is not acquired for private use, personal enjoyment, or other extraneous reasons, the typical avenues for that gain are through regular returns like dividends, capital appreciation on resale, or a combination of both.
- Importantly, the mere fact that the taxpayer contemplated a possible future sale does not, by itself, mean that the dominant purpose was resale. For the second limb to apply, it must be shown that resale was the primary intention at the time of acquisition. If the taxpayer’s investment strategy is focused on generating and increasing dividend income, and any buying or selling is guided by that objective, the second limb does not apply.
- A distinction must be drawn between sales made as part of managing an income-focused investment portfolio, and sales of shares that were acquired mainly for the purpose of realising gains on resale. Many investors acquire shares to secure both dividend income and long-term growth. Where there is no clear and dominant purpose of resale at the time of purchase, profits realised on a later sale do not fall within the scope of the second limb. [5]
Put simply, the dominant purpose test focuses on what really mattered to the taxpayer when they acquired the asset.
Parallels with gold investment
As the IRD has observed, cryptocurrencies like bitcoin typically do not generate income or provide other benefits while held, returns generally only arise upon sale or exchange. On this basis, the IRD presumes that such assets are acquired with the intention of disposal. This mirrors its approach to gold, which similarly does not produce income on its own and is therefore also presumed to be purchased for resale.
However, this presumption has not gone unchallenged. The New Zealand Law Society has contested the IRD’s position in relation to gold. It pointed to Australian case law suggesting that, in certain circumstances, non-income-generating assets can be acquired without a dominant purpose of sale. Each situation, the Law Society argued, must be assessed on its own facts. Cases in the IRD’s Question We’ve Been Asked: PUB00227: Income Tax – Are proceeds from the sale of gold income? (the QWBA) are illustrative:
- In one, it was evidenced the taxpayer’s intention was to hold silver for the benefit of their children, to be passed on at death or upon the children reaching maturity, with no other purpose.
- In another, it was evidenced that that gold was purchased by the taxpayer as part of a broadly diversified investment portfolio, without any specific purpose in mind.
Purpose beyond the transaction
A taxpayer’s dominant purpose in acquiring crypto must be demonstrated through their conduct and the broader context in which the acquisition occurred. Given the IRD’s default presumption that crypto is
acquired for disposal, the burden falls on the taxpayer to prove otherwise.
According to the IRD, relevant surrounding circumstances may include:
- the circumstances in which the crypto was acquired, used, and disposed;
- the nature of the crypto (whether generates income or offers other benefits while held;
- the volume and frequency of similar transactions; and
- the duration the crypto was held.
With respect to the holding period, the Court in National Distributors observed that the duration that shares are held before being sold is generally a significant factor. If shares are sold after only a few months, and there are no special circumstances justifying an earlier than expected sale, it is difficult to avoid the conclusion that they were acquired for the purpose of resale rather than for earning dividend income. Conversely, if the shares are held for several years through market fluctuations, this tends to suggest they were not acquired with the intention of selling. [6]
These observations undoubtedly offer some reassurance to the HODLers.
Treatment of CeFi and DeFi platforms
It would be unwise to assume that simply acquiring crypto for staking or earning interest through centralised finance (CeFi) platforms like Blockfi or Celcius, or decentralised finance (DeFi) platforms such as Aave and Compound, will prevent the IRD from concluding that your dominant purpose was disposal. [7] To rebut this presumption, you’ll need strong and credible evidence demonstrating that the crypto was not acquired with the intention of selling. In short, proving otherwise is likely to be a challenge.
That said, the ability to hold crypto in a non-custodial manner, earn income from it (such as through staking or lending), and even borrow fiat using the crypto as collateral, means that both CeFi and DeFi can offer legitimate pathways to generate returns without needing to dispose of their crypto. This is a key distinction between crypto and traditional non-income-generating assets like gold or silver.
If a taxpayer acquired crypto with this intention and can show that this strategy was actually followed, there may be a credible argument that the IRD’s presumption of acquisition for sale has been displaced. While the IRD is still likely to treat the returns from staking or interest as taxable income, either under a profit-making scheme or ordinary income concepts, it is possible that the growth in value of the crypto itself could remain untaxed until (and unless) a disposal occurs.
Unresolved areas in Crypto Taxation
That said, further clarification from the IRD would be valuable on several practical issues, including:
- When a taxpayer ‘deposits’ their crypto into a CeFi or DeFi platform to earn interest, does that act constitute a disposal for tax purposes? Not all such platforms are non-custodial.
- If a taxpayer transfers some of their crypto from one platform, e.g. a non-custodial wallet like a Ledger Nano X, to a custodial wallet with an exchange, e.g. Gemini, as a protective measure against potential hacks, would that transfer trigger a taxable disposal?
- In cases where a taxpayer dollar cost averages into crypto with the intent to hold it long term, but later purchases additional units of the same crypto to convert into another token on the same platform, will the IRD assess only the intent behind that specific later acquisition i.e. for conversion? Or will it apply a method such as first in first out, weighted average cost, or last in first out assessment in relation to the entire stack?
In the first two cases, the taxpayer likely intends to maintain ownership and control of the crypto, even though the asset may lose individual identifiability once moved. Whether a transfer to a CeFi or DeFi platform
constitutes a disposal could depend on the platform’s custodial structure and the legal nature of the arrangement:
- if the platform relationship is akin to a loan (i.e. a debtor creditor relationship akin to a general banker/customer relationship), the IRD may treat the transfer as a disposal; or
- if the relationship resembles that of a principal/agent or trustee banker relationship, where for example the platform acts more like a bailee of valuables or the crypto is offered as security by the customer to the platform, rather than ownership being transferred, it may not amount to a disposal.
Ultimately, the taxpayer’s original purpose at the time of acquisition remains central. Still, it wouldn’t be surprising if the Commissioner were to take the view that exchanging one type of crypto, even indirectly, amounts to a disposal – treating a transfer as swapping apples for oranges, rather than simply moving apples between carts. Such an approach would be unfortunate and, according to this article at least, arguably out of step with the more pragmatic treatment seen in jurisdictions like the United States.
Disclosure and reporting rules
In 2024, the New Zealand Government introduced the Crypto-Asset Reporting Framework (“CARF”) which, along with updates to the OECD’s Common Reporting Standard, intend to clarify challenges posed by crypto transactions in New Zealand.
The Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Bill received Royal assent on 29 March 2025 and is effected from 1 April 2026. From then, transaction information for reportable users of crypto services in New Zealand must be collected and reported to the IRD, who will exchange it with the appropriate tax authorities within three months of the end of the relevant tax year.
To comply with CARF, reporting crypto service providers must adopt self-certification and due diligence procedures, undertake relevant reporting and record keeping. This may require providers to make changes to internal procedural processes.
What the IRD can see
It is reasonable to assume that, much like the Australian Taxation Office (‘ATO’) and the IRS, the IRD is maintaining close oversight of crypto-related activity. Both the ATO and IRS have established dedicated investigative teams. With recent legislative amendments, the IRD has begun participating in international crypto data-sharing frameworks, significantly improving its ability to detect offshore crypto holdings.
In the United States, for example, the IRS has taken aggressive steps to identify non-compliant taxpayers by actively “hunting for tax cheats”. On 5 May 2021, a federal court in the Northern District of California entered an order authorising the IRS to issue a ‘John Doe’ summons to one of the country’s largest exchanges, Kraken, with the summons filed directing Kraken to disclose records identifying certain United States users and other documents relevant to their crypto transactions.
The IRS is also reported to have been investigating crypto and NFT activity on the dark web, and now requires taxpayers to explicitly state on their tax returns whether they have received, sold, sent, exchanged, or otherwise held any financial interest in digital assets.
Similarly, in Australia, the ATO has implemented a bulk data-matching program to monitor tax compliance in the crypto sector. In 2019 alone, it anticipated collecting AUD $3 billion in tax penalties from crypto traders. Reports suggest that the ATO is also using algorithms to analyse social media and other online data to identify discrepancies between lifestyle and declared income on tax returns.
The founder of New Zealand-based exchange Easy Crypto confirms the IRD is following a similar path. Although privacy concerns have been raised, exchanges such as Easy Crypto have expressed that they feel largely powerless to resist IRD requests for customer information.
Putting crypto tax rules into practice
Plan ahead and keep records
The above highlights the critical importance of proper structuring. Before acquiring crypto-assets, it’s advisable to seek professional guidance on whether to purchase in your personal name or through another structure such as a company, trust, or other entity, and how best to establish that structure.
If you’re not actively trading, and particularly if you wish to challenge the IRD’s default presumption that your crypto was acquired for disposal, it’s essential to maintain clear records documenting your intentions, actions, and the relevant context of what you are doing and keep those records safe. If the IRD questions whether any gains are taxable, this documentation may be crucial for you to rely on to show whether whether gains are assessable or not.
Be aware that transferring crypto to family or friends, even as a gift, may be treated as a disposal and trigger a taxable event.
If you are transferring, selling, or otherwise disposing of crypto, make notes at the time of the transaction.
If you plan to use crypto in a business context, or are considering crypto-based business activities, ensure you understand the relevant tax rules. If in doubt seek expert advice.
Avoiding mixing personal and business holdings
If you are engaged in trading, keep your crypto trading assets separate from your long-term holdings, ideally by using different exchanges or hardware wallets.
If you’re looking to diversify your risk across platforms or wallets, be mindful that such transfers could be treated as disposals for tax purposes. Moving assets to non-custodial wallets that you own and control is generally less likely to be viewed by the IRD as a taxable disposal, since ownership and control remain unchanged.
Tools and technology for crypto tax management
Platforms such as Crypto Tax Calculator and koinly cater directly to the New Zealand market and can significantly streamline the process of preparing and filing crypto-related tax returns.
Alongside the IRD’s official guidance, there is a wealth of helpful material available online from crypto tax specialists, including detailed checklists, as well as tax guides published by New Zealand-based exchanges.
Every taxpayer’s situation is unique. If you’re uncertain about your obligations, how the rules apply to you or are concerned you have a tax liability, it’s best to seek specific expert advice.
Disclaimer
This information is for general information purposes only. It does not, nor is it intended to, constitute legal, financial, accounting, tax or other professional advice, and should not be relied upon as such. This information is subject to change without notice. All liability is disclaimed.
To learn more about how to navigate the ecosystem of digital technology and commerce, visit this page of our website or contact Partner James Cochrane.
[1] This article generally covers taxation of crypto and principally focuses on tax issues facing crypto investors. It should be read in conjunction with our companion articles ‘Taxation of Cryptoassets for Businesses in New Zealand’ and Taxation of Cryptoassets and Residency in New Zealand’.
[2] Commissioner of Inland Revenue (CIR) v National Distributors Ltd [1989] 3 NZLR 661.
[3] National Distributors at 667.
[4] Commissioner of Inland Revenue v Hunter [1970] NZLR 116; Holden v Commissioner of Inland Revenue [1974] 2 NZLR 52.
[5] National Distributors at 668.
[6] National Distributors at 668.
[7] For the difference between CeFi and DeFi see this article: How The Ethereum, EOS, And PolkadotCommunities Got Divided Into Two: CeFi Vs. DeFi (forbes.com)
