New Zealand Plans to Drop ‘Unfavorable’ Sales Tax Treatment of Cryptocurrencies

New Zealand’s tax authority is considering changes to its treatment of cryptocurrencies that would drop the current and controversial application of goods and services tax (GST).

The current regime sees bitcoin and other digital currencies as property, with normal rules applying. That means crypto is liable for 15 percent GST when changing hands within the country as part of a business’s operations and potentially throws up a “double taxation” problem when income tax is later applied.

Calling the situation “unfavorable,” the New Zealand Inland Revenue Department (IRD) has now suggested doing away with the GST liability for cryptocurrencies in many cases, but keeping the treatment for income tax.

“Because of their innovative nature, [cryptocurrencies] will often also have different features to … other investment products. This means that some existing tax rules can be difficult to apply, involve very high compliance costs or may provide policy outcomes for some crypto-assets that lead to over-taxation compared to other alternative investment products.”

The overall aim of any changes would be that cryptocurrencies should have a similar treatment to other investment products or asset classes that are “close substitutes” for the digital asset.

An issue being considered by the IRD is whether different types of token should have different tax treatments depending on how they are used. One way forward is that tokens used like currency or shares would likely not be liable to GST, while other types might see the sales tax applied.

“An advantage of this approach is that it should provide a neutral tax treatment for those crypto-assets which are close substitutes for existing financial products such as currency or shares,” the IRD says.

The tax department suggests it might still treat some tokens differently, for instance, if a token is considered to be a share “but if it does not provide an interest in a foreign company or partnership, it would still be taxed very…

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