On August 26, 2024, New Zealand’s Minister of Revenue, Simon Watts, introduced a new bill proposal into the House that could have major implications for the cryptocurrency ecosystem for the island nation.
OECD Crypto Reporting Framework To Be Implemented
Titled Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures), the new bill seeks to give legislative effect to the Crypto-Asset Reporting Framework and Amendments to the Common Reporting Standard (CARF) developed by the Organisation for Economic Co-Operation and Development (OECD).
The proposed amendments are slated to take effect on April 1, 2026, and require New Zealand-based reporting crypto-asset service providers (RCASPs), such as exchange platforms, to conform to new regulatory requirements. Such entities will have until July 30, 2027, to report all the relevant user information to New Zealand’s tax authority, Inland Revenue (IR).
Specifically, exchanges must report their users’ personal information, such as their name, address, date of birth, and tax identification number. In addition, they will have to report the users’ aggregate level data on all relevant digital-asset transactions, crypto-to-fiat transactions, and transfers to digital assets to wallet addresses to ensure that profits are taxed accurately.
Subsequently, the IR will share this information with all relevant tax authorities worldwide in cases where the information applies to users in other jurisdictions by September 30, 2027.
The bill notes that currently, there is little oversight of digital asset transactions and income derived from profits through digital assets trading. It adds:
On an international stage, there has been increased impetus to ensure that tax authorities retain visibility over income or investment earning opportunities that are facilitated for individuals through large-scale intermediaries.
Repercussions Of Not Complying With Reporting Requirements
The bill proposes new penalties for RCASPs that fail to comply with their crypto-asset transactions reporting obligations. For each instance of non-compliance, they will be penalized NZD 300 (USD 187), capped at a maximum of NZD 10,000 (USD 6,231) per year.
Notably, RCASPs will not be liable to pay penalties if the circumstances are outside their control. Additionally, trading platform users who do not follow the reporting rules could be imposed with fines as high as NZD 1,000 (USD 621).
The strict digital-asset reporting rules highlighted in the bill hardly come as a surprise. In July 2024, New Zealand’s tax authorities stated that more than 200,000 people had failed to declare crypto income in their tax returns.
It’s worth highlighting that in 2020, New Zealand’s tax watchdog revised its guidelines to include cryptocurrencies under the category of taxable assets, essentially treating digital assets as a form of property for tax purposes.
Against that backdrop, the new bill proposal holds the potential to transform the existing cryptocurrency ecosystem in New Zealand completely. Should the bill be approved, the New Zealand tax agency will have access to users’ transactions on registered exchanges and be able to compute the amount of taxes they owe on their profits, if any.
While some countries are ramping up cryptocurrency regulations for better tax compliance, others are delaying taking such measures due to a lack of clarity regarding the new asset class.
For instance, earlier this month, South Korean lawmakers proposed postponing the enforcement of cryptocurrency taxation in the country due to investor concerns.
In Japan, the Japan Blockchain Association opines that stringent cryptocurrency taxes should be slashed to encourage wider participation in the burgeoning digital assets space. Observing the long-term effects of lax and strict cryptocurrency regulations on a country’s digital assets ecosystem will be interesting.
Featured image from Unsplash, Chart from TradingView
Credit: Source link
