As published on newsroom.co.nz, Thursday 9 February, 2023.
Greater visibility over who in New Zealand owns cryptocurrency would reduce tax avoidance, tax officials told the Revenue Minister
An international proposal to require cryptocurrency exchanges to surrender user information to tax agencies is expected to boost tax revenue if implemented here.
In August, the OECD released a new Crypto-Asset Reporting Framework (CARF) to help combat tax avoidance by cryptocurrency investors. Tax officials advised Revenue Minister David Parker in September the framework could boost compliance and revenues in New Zealand if implemented, according to a briefing released to Newsroom under the Official Information Act. They also began engagement with New Zealand-based exchanges and other stakeholders.
Decentralised cryptocurrency networks rely on exchanges and wallet providers to handle transactions. According to IRD, 80 percent of cryptoasset activity by New Zealanders occurs through offshore exchanges and an estimated 6 to 10 percent of the population owns cryptocurrency.
This makes it difficult for tax agencies to get visibility on transactions which might otherwise be subject to taxation.
The CARF would require exchanges and similar crypto intermediaries to provide relevant tax authorities with the name, address, date of birth and tax identification numbers of users under the jurisdiction of those authorities. "Aggregate level data" on all crypto-to-crypto and crypto-to-fiat transactions would also be collected for each user.
Exchanges would likely also have to undertake anti-money laundering checks as if they were a non-crypto financial institution.
Officials told Parker the CARF would only come into effect in 2025 at the earliest and would have to be implemented in New Zealand via legislation. They said they would consult with the six or seven exchanges in the country which might be affected and may then seek his permission to add the CARF to the next tax bill this year.
IRD said it may need additional resource if the CARF was implemented in order to "effectively utilise the information to support tax compliance" but the proposal would still "be revenue positive. This is because the increased visibility over incomes derived through cryptoassets would drive increased tax compliance."
In December, cryptocurrency law experts at MinterEllison said the CARF was "a significant development for the crypto-asset sector and will create new, potentially onerous, compliance obligations for New Zealand crypto-asset service providers".
In a statement to Newsroom, Parker said Cabinet had yet to make any decisions on CARF and officials were still working to quantify the exact impacts of implementing it.
"There are no other material updates since the date of the briefing, although officials have been conducting targeted consultation with affected parties in New Zealand since that date," he said.