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New Zealand Proposing GST Exemption For Crypto-Assets

Posted on 03-05-2020

New Zealand’s Inland Revenue Department has announced the launch of a consultation on potential reforms to improve the goods and services tax regime.

The Government said the reforms will modernize the GST regime and ensure it remains fair. It is proposing changes in four areas:

  • Improvements and simplifications to tax invoice requirements;
  • Excluding cryptoassets from GST and certain financial arrangement rules;
  • Reforms to the GST apportionment and adjustment rules;
  • Simplifying how GST can apply to certain financial services in the managed funds industry.

The proposals in the area of crypto-assets are significant. The Government has said that while it is proposing that crypto-assets should broadly not face GST, positive GST rates and specific rules could be introduced where appropriate. The consultation document states: “It is intended that crypto-assets should have a similar tax treatment to other investment products or asset classes which are close substitutes for the crypto-asset. It is not intended that crypto-assets would receive a concessionary tax treatment.”

The Government is considering a number of options. For instance, it is considering whether all crypto-assets should be exempt from GST (as is the case for money), or whether there should be a zero rate for supplies to non-residents (which would align the rules for cryptoassets with those for financial services).

It notes that introducing a zero rate of GST for supplies for non-residents may have a negative impact on how attractive New Zealand is as a domicile for exchanges, and a zero rate would mean that New Zealand investors who trade more than NZD60,000 (USD29,500) of crypto-assets in a
12-month period on international exchanges would typically be required to register
for GST (assuming most of their trades were with non-resident persons).

Additionally, the Government is considering whether crypto-assets deemed to be shares should be treated not as financial arrangements for income tax purposes (and so would generally be taxed on a realized basis) and exempt financial services for GST purposes.

The proposed GST changes would only apply to supplies of crypto-assets. Other
services related to crypto-assets that are not in themselves supplies of crypto-assets,
such as mining, providing crypto-asset exchange services, or providing advice,
general business services, or computer services, would continue to be subject to the
existing GST rules. Under the existing GST rules, these services could be either taxable supplies to New
Zealand residents subject to 15 percent GST or zero-rated supplies to non-residents.

GST will continue to apply to supplies of goods and services that are bought using a crypto-asset.

Finally, the consultation considers whether certain types of crypto-assets should have a different GST or income tax treatment.

The Government is proposing that the changes to exclude crypto-assets from GST would have retroactive effect to January 1, 2009.

New Zealand’s Inland Revenue Department has announced the launch of a consultation on potential reforms to improve the goods and services tax regime.

The Government said the reforms will modernize the GST regime and ensure it remains fair. It is proposing changes in four areas:

  • Improvements and simplifications to tax invoice requirements;
  • Excluding cryptoassets from GST and certain financial arrangement rules;
  • Reforms to the GST apportionment and adjustment rules;
  • Simplifying how GST can apply to certain financial services in the managed funds industry.

The proposals in the area of crypto-assets are significant. The Government has said that while it is proposing that crypto-assets should broadly not face GST, positive GST rates and specific rules could be introduced where appropriate. The consultation document states: “It is intended that crypto-assets should have a similar tax treatment to other investment products or asset classes which are close substitutes for the crypto-asset. It is not intended that crypto-assets would receive a concessionary tax treatment.”

The Government is considering a number of options. For instance, it is considering whether all crypto-assets should be exempt from GST (as is the case for money), or whether there should be a zero rate for supplies to non-residents (which would align the rules for cryptoassets with those for financial services).

It notes that introducing a zero rate of GST for supplies for non-residents may have a negative impact on how attractive New Zealand is as a domicile for exchanges, and a zero rate would mean that New Zealand investors who trade more than NZD60,000 (USD29,500) of crypto-assets in a
12-month period on international exchanges would typically be required to register
for GST (assuming most of their trades were with non-resident persons).

Additionally, the Government is considering whether crypto-assets deemed to be shares should be treated not as financial arrangements for income tax purposes (and so would generally be taxed on a realized basis) and exempt financial services for GST purposes.

The proposed GST changes would only apply to supplies of crypto-assets. Other
services related to crypto-assets that are not in themselves supplies of crypto-assets,
such as mining, providing crypto-asset exchange services, or providing advice,
general business services, or computer services, would continue to be subject to the
existing GST rules. Under the existing GST rules, these services could be either taxable supplies to New
Zealand residents subject to 15 percent GST or zero-rated supplies to non-residents.

GST will continue to apply to supplies of goods and services that are bought using a crypto-asset.

Finally, the consultation considers whether certain types of crypto-assets should have a different GST or income tax treatment.

The Government is proposing that the changes to exclude crypto-assets from GST would have retroactive effect to January 1, 2009.