Background

You know that exchange you KYC'd a few years ago, yeah they're sharing your information with IRD.

In the last couple of weeks I've seen a number of clients receive letters from IRD in relation to Crypto investments held within Binance, Easy Crypto, Bitprime and a number of others as well deposits into bank accounts being flagged.

What does this mean for you?

• This is a request of information from IRD for copies of your cryptoasset income calculations for each tax year, as well as your end of tax-year cryptoasset holdings. This is not a full audit at this stage

• If you have previously included Crypto income in your tax returns you just need to submit the workings to IRD for review.

• If you haven't previously included Crypto income in your tax returns it is highly recommended that you submit a voluntary disclosure to file this income with IRD to reduce any shortfall penalties for not taking reasonable care / taking an unacceptable tax position

Background - how is Crypto Taxed?

• As I'm sure you (now) know, If you've sold, transferred, traded or disposed of any cryptocurrency this creates a taxable event. The taxable amount is the difference between the value of when you bought the cryptocurrency and when you disposed of the cryptocurrency, less any fees incurred in the transaction (gas fees or payment processing fees etc). The sum of all of the taxable amounts (profits less losses) of all of your taxable events is your taxable income from cryptocurrency which is what we will need to calculate.

• This means even if you haven't actually cashed anything out to FIAT, you may more than likely have a tax loss or tax to pay from previous years which is why we need to calculate this from the very start.

What should my next steps be?

Reach out to an Accountant - who actually knows how to deal with Crypto (there basically only about 10 who actually know how Crypto works in NZ) (Highly recommended)

or

Do it yourself

1. Compile a list of all the wallets and exchanges you have dealt with as well as all of the FIAT deposits and withdrawals that have been made

2. Import these into a tool like Koinly or CryptoTaxCalculator - all transactions from the beginning of time

3. Review for any missing transactions/wallets or missing pricing data

4. Run the tax reports for each year that you have been trading and total all these gains/losses all up in a table. Export these reports for your records

5. Prepare a voluntary disclosure and submit this with IRD

6. Pay any outstanding tax due (note this will likely have interest and penalties dating back to when it was originally due)

If you have anymore than a few hundred transactions or have bought/sold NFT's, staked crypto, interacted with DeFi, Liquidity pools, airdrops, or any other money making scheme on chain or were were caught up in LUNA, FTX, Celsius, Cryptopia etc I'd highly suggest engaging an accountant to do this as it can get very complicated very quickly.

If you feel like going down a total rabbit hole of Crypto Tax give the below a read

• https://taxhawk.co.nz/insights/cryptocurrency-tax-101-what-is-taxable

• https://taxhawk.co.nz/insights/cryptocurrency-tax-102-why-is-it-taxable

Any questions let me know!