New Zealand has quietly made a huge step in advancing the acceptance of cryptocurrencies by allowing employees to accept them as payment and pay tax in the same way as regular fiat salaries. This is a major step forward for crypto fans as it streamlines the tax situation significantly and negates the need for individuals to report crypto earnings separately.
Terms and Conditions Apply
The development was revealed as part of the Inland Revenue Department’s August bulletin, where a new rule was published which states that employee salaries can be paid in digital assets as long as the payments are for services performed under an employment contract, form a regular part of the employee’s remuneration, and are for a fixed amount. The asset being paid must also be exchangeable for fiat currency, or must have the primary purpose of acting like a currency (which would exclude utility tokens). Stablecoins pegged to the price of one or more fiat currencies can also be accepted.
Big Step Forward
Technically, cryptocurrencies can be accepted for goods and services by most countries where they are legal, but the practice is hampered by the tax implications. In the UK for example, cryptocurrency received in this form has income tax applied to it at the value at which it is sold rather than at which it is received. This means that UK individuals wishing to hold the cryptocurrency they have been paid must immediately sell it then buy it back, or at the very least move it to a different wallet immediately. On top of this, once the crypto has been received it is also considered a capital asset, meaning that any increase in value between the time it is received and the time it is sold is subject to capital gains tax too. The benefit for New Zealanders over other nations such as the UK is that crypto salaries will be treated as PAYE (pay as you earn) income payments, which means the crypto will be viewed in the same way as fiat currency and taxed as such, with the tax being deducted by the employer and passed onto the tax department.
First of Many or One in a Hundred?
This is great news for New Zealanders, but if cryptocurrency really has ambitions to become a mainstream currency alternative, then such schemes will have to become the norm rather than the exception. Many countries are reviewing their crypto tax procedures, meaning that crypto fans will have to rely on their nation’s viewpoint on this new asset class to see what kind of deal they receive.