Tax implications when using cryptocurrencies

Webinar Recording and Transcript

Date: 05/07/2024

Host: Kevin Whitmore, Business Innovation Advisor at Callaghan Innovation

Guests: Jodi Collinge - Chartered Tax Advisor

Webinar Length: 50:20

[00:00:00] Introduction and Housekeeping

Kevin: Kia ora koutou, welcome to today's session on tax implications when using cryptocurrencies. I will just quickly jump into some housekeeping. So we are recording this session. So just be aware of that. If you do have any, any questions. whilst we're kind of discussing things, probably safest just to put them into the chat function in Zoom, and we'll surface those, but I have a feeling this is going to be a relatively interactive session today, so you'll have a chance to come off mute and ask some questions and, and do all that sort of stuff and then we'll have a very short survey at the end just to, to find out how you found things, but also any other topics that might come up you want to pursue and find out more about as well.

[00:00:43] Overview of Today's Discussion

Kevin: So just in terms of today's discussion there is a subtitle down there around the problems yet to be solved. So today's idea was to discuss What's happening in the trenches with businesses around tax challenges when, when using and or trying to advise your use of cryptocurrencies and digital assets.

so it's very much a session on what are the problems, what are we seeing what is the everyday kind of impact we're also mostly going to be talking about problems yet to be solved, so today's idea is that we talk about those for those that actually have some solutions. That's all good as well, but it's mostly going to be identifying the problems that haven't yet been solved so that we can follow up with those in a separate session with those that think they have the solutions and potentially with the IRD as well.

So very much bound surfacing problems today. So just wanted to set that expectation for today's session. All right.

[00:01:43] Introducing Jodi: Chartered Tax Advisor

Kevin: So I will hand over to, to Jodi and just for a little bit of context as well, so Jodi is a chartered tax advisor. We were having a bit of a discussion on a separate Web3NZ session with the Lightning Pay crew, just when they were introducing their, their product.

And we thought it would be good to get Jodi on, on just to see and discuss the things that she's seeing as a tax advisor. So that's, that was the genesis for today's session. So I will hand over to Jodi.

Jodi: Thanks, Kevin.

[00:02:21] Challenges in Using Crypto for Business Payments

Jodi: I predominantly do tax advice and calculations for people with crypto. I hold crypto myself and as part of that I'm increasingly asked by people questions about if they were to, you know, how would they go about accepting payment in crypto for their business or using crypto within their business?

And So that even when I was looking for my own business about whether or not I would offer clients the option to pay in crypto and started to research around that area, it was really hard to find any sort of software that incorporated, I predominantly use Xero for my business and my clients that have accounts, that incorporated well into there.

So for example, I could use a request finance type product to raise an invoice in crypto. But then how that integrates into my Xero and I'm a predominantly service based business, quite few number of invoices. And even for that amount of transactions, it seems really quite hard to you know, be notified about when payment had been received, then create that, recreate that invoice into Xero to be able to match up the payment.

That was, if I then created, moved the crypto into New Zealand dollars and it was able to be matched up. So when. We had the lightning pay when they were demonstrating their product. And there's also PIN and various other ones in New Zealand. It seems to me that the problem that they're trying to solve is If you've got somebody with New Zealand dollars or crypto, and you've got a vendor who wants to receive New Zealand dollars or crypto, it goes through our banking, credit card system, whatever, and the, the cost of that is relatively expensive.

So, why can, Mr. X with his 100, not buy products and the vendor ends up with 100 as well with this bit in the middle. And so these are basically saying, well, if you use blockchain in the middle, instead of going through our banking system, that can be a lot cheaper than the fees that are currently being charged. And to me, yes, that's, and that sounds, sounds great to me. But what it's not considering is the account, how that's accounted for and I think they think it's relatively simple, but as an accountant, it's not and trying to find the, if you're going to do that, for example, as somebody with a large amount of transactions, like a restaurant or a cafe or something like that and then you decide not to also take all of that crypto payment in New Zealand dollars, you take some as crypto and, and which, which you can do how that then incorporates into your accounting system and what your accountant says at the end of the day about that seems really quite difficult.

And I haven't really come across anything in New Zealand that answers that question. There are global products around for that. So there's quite a lot. There's you might have heard of Cryptoworth, Cryptio I think Request Finance have merged with Consola Finance and things like that, but they're relatively expensive.

I find the average client moans about 40, 50, 80 a month for Xero fees. If you were going to use one of these products, then It's really quite expensive. You're talking maybe four or five hundred dollars a month. And so that then automatically takes out the saving that you're making on your credit card fees.

So I guess my questions are around, it's great that we're thinking about using crypto or blockchain technology as a means of payment or accept, you know, paying your bills or accepting payment in crypto. But we need to think on a wider basis for how this is incorporated in your normal accounting system.

You need an accounting sub ledger to be able to automate a lot of this. The current software from a New Zealand perspective is quite expensive. And I think that's one, either not being considered in deciding whether crypto, you use crypto within your business, or it's, if you do consider it, it's definitely a barrier to using it.

Yeah, so that's kind of where I got to. People ask me this question all the time. From a tax perspective probably interesting is that Kevin mentioned before, you, you may have all seen that there was an article over the last couple of days, in land revenue, we're talking about Cracking down on crypto and, and the tax implications and whether or not I don't know, I think, I think the comments around the article are a bit more interesting than the article itself the usual, oh, crypto shouldn't be taxable, how do inline revenue deal with all these numbers of transactions?

[00:07:35] Global Tax Implications and Comparisons

Jodi: The comments I would have around that would be, the way Firstly, this is not an IRD New Zealand problem, it's a global issue. Every country, pretty much apart from the ones that either don't tax crypto, so you don't care. or have like El Salvador have adopted it as legal tender have exactly the same problem.

They all treat a swap of a coin as a taxable event. And so when they're talking about New Zealand's on the bandwagon and IRD are on the bandwagon trying to tax everything, this is a global thing. And pretty much every jurisdiction Australia, the US, the UK, they all tax it the same. It might be a capital gains tax, there might be different rates of tax, but the actual what is determined to be a taxable event is pretty much the same. So I don't think, or it's probably quite unlikely that New Zealand is going to be at the forefront of changing that. I've, I've sat on calls with different tax jurisdictions, especially when El Salvador first introduced Bitcoin as legal tender. And one of the questions asked of those tax jurisdictions was, Will this change the way you tax crypto or the fact that you deem it to be property and not legal tender?

And pretty much everyone went no. It would take a massive player like somebody, like the US for example, to change, for everybody else to go away and reconsider. So that's something that's not going to change anytime soon. People talk about, oh, you know, what are you going to do if you've got 10, 000 plus transactions? You know, how is Inland Revenue going to do that? How are you going to calculate the profit or loss on every, every single transaction? It's ridiculous. It happens all the time. People that deal in foreign currencies, if you have a website and you sell predominantly to the US, for example, and you get paid in US dollars, there is no difference.

You account for the forex on that in every single transaction. The way it's taxed might be a little bit different, but the gain or loss gets calculated on every single transaction. So it's not a new thing. It's more that probably the crypto community yet again are going, poor me, why me? Yeah, so the tax treatment isn't, I don't think, going to go away.

And for somebody that's, so in New Zealand because we don't have a capital gains tax, there's not a lot of difference with somebody who's using it in their business as accepting payment. or an investor, because you still calculate, there's a, there's a few different rules around stock valuations at the end and things, or if you were to become non resident, but on a general basis, there is no difference between calculating the profit or loss on, on that transaction and it being taxable or not. Yeah, so they're kind of my thoughts. I don't think New Zealand is going to change its tax treatment anytime soon. I think it's awesome that, you know, the uptake of crypto and the technology behind it, but I guess my questions are around how does New Zealand on the bandwagon of making this a more simple process for people to use in their business, potentially hold crypto on their balance sheet, make a decision to, right, I need 80 percent of, of my income from that transaction to be able to run my business, but I'd like to be able to hold the 20% as crypto, or I would like to use that amount to then pay my staff or pay my bills.

But how that incorporates into your accounting software, I think is a major issue.

[00:11:25] Practical Issues with Crypto Accounting

Jodi: So I guess today is more about if anybody's got any experience of that. Do any of you do any invoicing or pay in crypto? What products do you use? Do you find it easy? Yes, Louise, I do have plenty of experience with Coinly.

It is tax software. It's not an accounting subledger. So it does incorporate, so you can link it into Xero. There's a limit on the number of transactions that you can do it for. So that's not the kind of software we're talking about. We're not talking about tech software. We're talking about an accounting sub ledger.

So it would take your, so if as a business, you had three wallets that that's where all your crypto came into, for example, and you may, you may pay stuff out of there. You may transfer some to New Zealand dollars. You may pay some bills out of it. Trying to do that from Coinly. Is as tax software is not the answer.

You need to have a counter and a crypto sub ledger that will amalgamate all of those transactions, create the journals, and then import them into your main general ledger, does that make sense? So there are heaps of tax software. Products out there, Coinly, Cointracker CryptoTaxCalculator and so forth, they're more predominantly for working out your tax liability if you are perhaps an investor, not if you're using it within your business, particularly. So, yeah, probably not chat for any of that. Does anybody want to make any comments about if they've got any experience with this

[00:13:15] Audience Questions and Interactive Discussion

Kevin: can I just ask, it doesn't seem to be a volume challenge per se, I mean, we talked about, you know, tens or hundreds of thousands of transactions, but as you pointed out, we've already got that issue if you're dealing in FX overseas, and you have to track or calculate any gains on that anyway.

So it's not a, it's not a volume based challenge but there is a crypto specific. elements to, to what we're talking about in terms of the, the tracking it back to wallets, et cetera that are, that are different. So there's a cost aspect to it is probably one of the challenges. There is software out there, but it's prohibitively expensive potentially, if you're talking sort of 500 a month, would that be the biggest challenge?

Jodi: I think so. So there is, I suppose it's how we make it the norm and achievable in not just looking at it from this is no offense to anybody that's selling any of those products, but at the end of the day, they're also in it to make money that, you know, the pins, the lightning pays and whatever. So the way they're selling it to people is that, oh, your credit card fees might be 3%, but we can do the same thing for 1%.

And you go, sweet. I mean, we haven't looked at it holistically in that, how are you then, that's great, but then you go to your accountant to get your or your bookkeeper. If you Google, finding yourself a crypto bookkeeper in New Zealand, you pretty much won't get an answer. There just aren't any there.

And in this web three industry you will probably know Louise's that you A lot of it is done in house because they are the people that understand the transactions and they have a system that works for them in particular. And they're generally very crypto based. How do we move that out to just Joe Bloggs running his plumbing business or the restaurant down the road or the technology to be able to do it without that?

Third party, the bank, the clearing houses and whatever is awesome, but how we actually get there at this moment in a, so that, that is a normal thing that we can do. I don't think exists in New Zealand at the moment. El Salvador? Yeah. Do we they must use something. Do you know what I mean? And there are products out there and there are some, and I, I, because I am not a crypto accountant as such, I am predominantly the tax side of things, but because people keep asking me these questions all the time, I've then, you know, thought and gone and stuck my nose in.

There are and, and then you've got people that are wanting to do the token issues, working on, you know, working as part of a DAO and how the accounting, but then you also have the ability to do things, work with that, and they all tend to be in house, very specific jobs. And how do we take that on a mass basis and make it the norm for if, if you do want to partake in the crypto community.

One, do you already have to have Crip? Because that's the other problem I find is a lot of these, when we talk to the Lightning Pay people for example The thing that's free is if you already have your Bitcoin and you want to use it to pay. I pretty much don't know anybody that has Bitcoin that wants to part with it.

They want to, it's there, but they've got, it's a different purpose. Then you go, Oh, well, I've got New Zealand dollars. And they go, Oh, well, so then you need to buy your crypto to use the crypto on the thick to then convert it. And then that's where the costs start coming. So then they charge you 1 percent on the exchange to buy the crypto.

So then you go, well, why am I faffing around with all this? I've got New Zealand dollars. He wants New Zealand dollars. Yes. There's a bank in the middle, but when I take account of the issues with using blockchain in the middle, why would I bother? And I just think to get this mass adoption within a community that you'll I think it needs to be easier.

For example, I don't want to raise an invoice for, to, in crypto for somebody in software over there, and then have to recreate it in Xero over here. and wait to be notified that that money's gone into my wallet. And then what I'm going to do with it once it's gone into my wallet.

Louise: I agree with you, Jodi.

And I've just got a question on this and I, which is Roman's question of, so when you spend the crypto on a transaction, it's, it's considered a disposal, isn't it? And so isn't that a tax event? So therefore, while there's the 1 percent fee on it, in addition to that, I need to pay tax on it. Is that correct?

Jodi: I think it would depend how it works in the background. So, do you see any of that? So if I'm your customer with a hundred dollars, I just give my hundred dollars and I get my product from, from wherever. And I don't see any of that bit in the background. Because the exchange of the New Zealand dollars to the crypto to the whatever, I don't see, but you don't see the apart from when you have to say, do you accept this credit card charge?

And you don't see it, it all happens in the background. In that case, I think it's because it's not for you as a customer, you've just given your 100. And that's it. I think the issue, if it was like you were required to have an account on this app and put your 100 onto this app and then convert that into Bitcoin, and to be honest, if you're doing that all in seconds to buy something, you're probably not going to have a gain or loss anyway.

I know. I'm caveated by I know fluctuations can happen that fast, but you know what I'm saying? Like in theory, if it's seconds for it all to happen, you're probably not gonna have a gain or loss or it's gonna be very minimal to ignore. So that's another question. How does that happen? Do you just simply start with your a hundred dollars and get your product and walk, walk away and whatever happens in the background is of no consequence to you?

Or do you have to. Put that hundred dollars, use an app you know, to then create, buy your crypto to then go and spend your crypto. And that's the other thing is like, could you be asked?

Pramodya: You raised an interesting point because you said it can be raised as a capital gain. Well, What actually makes it a capital gain? Like if the US dollar goes up in value, what do we base it against? If the Bitcoin goes up in value, what do we base it against? Apparently we base it against the US dollar, right?

But it's like, it's like paying with Bitcoin is the same as buying something by paying with your house, right? Is that, is that how we class things, right? Like it's a capital gain. Is it the same level of security? It's very confusing.

Jodi: Yeah, so we don't, and that's, and just to add another layer for that in New Zealand, so we don't have a capital gains tax, but we kind of call it a capital gain. So it's just the profit or loss on that transaction.

Pramodya: But that's the thing, profit or loss based on what?

Jodi: So on the conversion to New Zealand dollars.

Pramodya: Okay, so if say I bought Bitcoin the all time high in the market, that means I'm always buying everything at a loss.

So the IRD owes me money. How do, how do they prove that Bitcoin specifically was bought at a loss? That's where it gets confusing for me.

Jodi: You don't buy at a loss. You can sell a loss, there are couple of valuation methods you can use in New Zealand, which are, you can, well actually there's three. If you can specifically identify the crypto that you're disposing of. So for example, you had one wallet, it had one Bitcoin in it, and you knew what you, what you paid for that, then you can use that as a cost basis, or you can use FIFO or weighted average cost. So, that's, and that's if you're spending things that you've already got, I guess from an investment point of point of view.

Matic: I have like a little bit different question. I'll start with the normal finance. So I don't know, Air New Zealand is giving you a travel card where you can put a hundred US dollars on and then you can spend it whenever. Right. So let's say I had a bank note or whatever on my bank account, a hundred US dollars, put them on the card. And now, you know, New Zealand dollar went down or up, whatever. And I buy something in New Zealand for that, you know, and not in the US. Are you, like, who's declaring tax on that, or gains on that?

Jodi: So there isn't any on it, because the USD and the New Zealand dollar or whatever, they are legal tender. So they're different, and if they're used for a personal point, for personal like you would just go in on holiday and you were visiting five different countries so you loaded up this card and that allowed you to spend, you know, to convert at the time of spending in the different countries. That's not the same as if you were a business accepting US dollars.

Matic: It's impersonal because it's related to our product, like our product is A card backed by USDC. So it's basically USD represented by a company in the US. So when I'm paying with why our card, I'm basically spending the US dollar that is on chain for New Zealand dollar or for US dollar, you know, one-to-one like USD to USDCs one-to-one. So I would say that's the thing is spending USD.

Jodi: But you're not spending USD are, you're spending USDC, which has a different definition of, so that is, that is within the definition of a crypto asset. I understand fully what you're saying. I completely understand you're going, it's just the same as spending USD. But they're both USD is legal tender, USDC is not legal tender.

Matic: But where is legal tender? Is this definition of New Zealand? Because, you know, Bitcoin is a legal tender in Salvador, so when you're spending legal tender, you're not paying tax.

Jodi: So legal, legal tender is a reserve bank decision. So it's not the government, it's not IRD, it, it's, it's the reserve bank that decide what is legal tender for that particular jurisdiction.

Matic: So basically in New Zealand, the USD is legal tender Yes. By reserve Bank. Where, where is the list?

Jodi: On, on a glo, on a global basis. So it's, it's, it's defined as fi con currency. It's backed by a by a government. In theory that they don't just keep print printing it. So it's. It's just, it's, it's purely the definition.

I fully understand what you're saying, that the values are exactly the same because USDC is pretty much pegged to the value of USD, but what they are, are two different things in the eyes of.

Sean: But I think there's a difference here because the merchant is not receiving USDC in that particular transaction. So, from the customer's perspective, you're spending USDC from your account, but that's swapped one for one, dollar for USDC to USD, and then that USD is being spent. at the merchant. So there's no gain on that one for one conversion. So I think you'd have a pretty good argument to say that you're spending US dollars.

Jodi: Yeah. From a customer point of view. It depends if it is what you're buying from the merchant in denominated in US, US dollars.

Sean: Kiwi dollars.

Jodi: Yeah, so from that point of view, then the merchant, when they receive, so, let's say they invoice, what you've bought is can't even think what the exchange rate might be right now, 620 USD, and they get a thousand, so it's supposed to be a thousand, if, if it's point of sale, There's probably going to be no forex, but if you were, if it was an invoice you know, where you don't, you just get invoiced and you don't pay it that time, the New Zealand dollar and the USD may have fluctuated in value between the point of sale and the point of payment. that fluctuation would be accounted for by the merchant. Whether that was USD or USDC, that wouldn't matter.

Sean: Yeah. I mean, it's the same as that example earlier with having an Air New Zealand card, you've got a hundred US dollars left on it or a thousand US dollars left on it, and you go and buy something at a New Zealand merchant, you're taking an exchange rate.

Risk on the fluctuation. And with the immersive card, you've got USDC on your account, you buy something in New Zealand dollars, but in between that transaction, the US dollar USDC is being converted to US dollars one for one. There's no profit made on that transaction.

Jodi: So in New Zealand we have some different roles called the financial arrangement rules. So. Potentially, you could be taxed in New Zealand on Forex movements. So, that works, but there's a, there's a de minimis on that, which is 50, 000. So, if you had more than 50, 000, you should, in, for example, a US bank account, a UK bank account, on one of those cards, and you left it there and didn't spend it, You should be accounting for forex on that, maybe not until it's realized, in some cases when it's unrealized, but definitely when it's realized.

So there are rules that will also tax forex under the financial arrangement rules. It's just that there's a de minimis. So, most people don't put 50, 000 on their holiday card when they go, when they go spending. I would like to do that. But there are still rules that tax some of those transactions. It's not entirely that all those transactions are tax free, yet because it's crypto, it's taxable. It's just that different rules apply.

Kevin: I might just jump in there. So, just going back to your previous point there, Jodi. So, last couple of days in Auckland we ran a catch up event and we put it to the PIN guys as well.

The concept around the I think you, you mentioned before around if I'm earning in New Zealand dollars and, and I'm converting it to Bitcoin you know, there's exchange fees and transactions involved there.

[00:28:30] Exploring Native Crypto Economies

Kevin: What happens if you're natively paid in Bitcoin, for example? And then you mentioned I don't know, a lot of people that would want to spend their Bitcoin and all that sort of stuff.

We're, we're sort of starting to experiment with what happens if you live natively in that digital currency. So you start to create a circular economy. Obviously we've identified the challenges around legal tender. And at the moment, if it's treated as property, then things start to get triggered and it's, it's treated differently.

But if there was a circular economy where you can pay your bills, so, you know, I probably wouldn't bother at the moment because my mortgage goes straight to fiat currency. So if I'm in my salary and in Bitcoin, there's an immediate, you know, large conversion that kind of makes me hesitate. What's the point?

But if I had a bank that was actually interested in, you know, payments natively and in digital assets, it becomes very, a different discussion, right? So that's something that's kind of being explored at the moment is what are the opportunities for, you know, being able to pay and operate more natively and some of those currencies as a, as a thought experiment.

And then obviously we start to embark on all these challenges around how you account for it, the tax implications and things like that. So just, yeah, I guess long winded way of saying I think that's, that's the thought experiment that we're trying to experiment with a little bit is, you know, what if people are natively paid and therefore you get the opportunity to, to pay those sorts of things in, in crypto instead.

Jodi: Yeah. And, and I think it all comes back to probably the type of crypto and the volatility of that, you know, I think that's, even if you're whole ecosystem, for example, operates in crypto. I think there's certain cryptos that will always be seen as a speculative investment, as opposed to you know, less, less fluctuations.

So. The massive hurdle to overcome in attempting that is one, what crypto do you choose or cryptos do you choose? And two, the risk you're willing to take for the fact that you might get paid in Bitcoin today. And your bank might accept payment of your mortgage next week in crypto. But what if the rate has changed that the Bitcoin you have is not enough to pay your mortgage next week.

Kevin: Do you have any thoughts on those sorts of, well, you just mentioned there'll be some that may be purely seen as speculative. Is that like a on one hand, you've sort of got a Bitcoin and the other, you've got sort of bonk or whiff or something like that on the other side that, that meme coins might be treated differently to, to others?

Jodi: I don't think it was ever envisaged, was it, when, you know, when the white paper was written and it was that, oh look, this has been allowed to happen between governments and the banking system and what's collapsed, wouldn't it be great if we could use this as a payment system with no intermediary required and in theory this would be great.

But that perspective has just completely changed to, you know, this speculative environment of people are making silly money from speculating and, and the gains. And I don't know how you bring that back to avoid the volatility of , inflation aside, fiat currency is worth the same. Do you know what I mean? A dollar is a dollar. Your purchasing power may, may be different, but a dollar is a dollar is a dollar.

Kevin: And I think a lot of that came down to utility initially, right? And the technology at that point was, you know, I can't wait here half an hour to pay her to buy a coffee, and that has now shifted, I think, and especially as we're seeing things move faster L2s out there, lightning networks, etc.

It's starting to come back into the discussion in terms of usability and not just speculation. So I think, I think that's, that's what we're seeing at least is how does, how does the tech side and the interpretation of legal, legal tender keep up with the technological improvements and changes that are happening as well.

Jodi: Yeah.

[00:32:50] Future of Crypto and Taxation

Jodi: And again, I think it's not going to be New Zealand led. It's an issue the world, the world over.

Louise: Why not New Zealand? Like we've led on other things before, like we lead on, like the introduction of like EFTPOS, you know, that was created in New Zealand. These sorts of things were a great country for testing.

And while I hear you on the, the fringe, like people that are like, I don't want to pay tax. And, you know, they're never going to get it. I don't agree with them, but I think that their voices are really important because the whole, like the really underlying point of crypto, why it was started was that there are so many unnecessary taxes at the moment.

It's a fact of life, but there is so much waste going on. So why. How do we start at grassroots level movement of challenging these things. And also the IRD for me like as a crypto user, and I would say pretty native, I would go completely crypto if I could. It is so cumbersome. There and I do feel a massive overreach of documenting every single like tiny thing, which I don't have to do on my shares. So why do I have to do this in crypto? So how do we challenge the rules

Jodi: I'm 50 50. I'm a bit like still with me, IRD investigator hat on, you know, you are making money, why not pay tax? And then the other side of. But it is, you know, as somebody who does these calculations, it does not need to be this hard. So, and you, there were heaps of stuff that we discussed at IRD. You know, let's just do a flat rate on crypto for tax. Let's go 20 percent or whatever. And it's, so it's not an IRD thing.

It's not necessarily an IRD policy thing. It's definitely a government thing. And I feel as though like a massive issue with that is lack of understanding, you know, they did that working group thing where all those papers were submitted and they asked a million questions, a bit like the tax working group, but on another level, because they, you have to get to that level of understanding first before you can then even start to think about how it applies in the real world and then make decisions.

And. It's an uphill battle, isn't it? And I think it's going to be a long, a long battle. And I think part of that problem comes about from You know, you guys are all in the trenches with it, dealing with it every day, whereas what actually happens on a different scale is you get the big four accounting firms or the top ten lawyer firms jumping on the bandwagon, having their say at a high level, but not You know, I've had, I've had clients that I've been to accounting firms with and ask them questions and their response is, yes, those transactions are taxable and they go, right, okay, so what figure do I put in my tax return?

They're, oh, oh, no, we, we don't know how to do the calculations. We just know it's taxable. And they're the ones that all have the voices and jump on the, you know, how many of those reposted that IRD thing on LinkedIn the other day and added their two penny worth about what they thought and. You know, whether it was right or wrong.

I think one of, as I said, one of the comments was, well, what would IRD do if you sent them a list of 10, 000 transactions? 10, 000 transactions, you all know, is probably small fry, you know? And so, I think it's twofold. It's one, it's getting the government on board, but to do that, their understanding has to increase massively, and I'm not sure they have an appetite for that.

And then on top of that, it's, it is what I encounter every day. It's people that come to me and they ask what I charge and what I do. And it's that usual. quick intake of breath because there's so many people out there claiming that they know what they're doing and they'll do it for less and the same with everything really is like how do you get rid of this little group here needs to get to this needs to get to this size and it is though it is if i think back to and probably you guys as well you think back to you know it was this size and it's gaining traction, but I'm not sure the government are going to listen to me.

Matic: Well the comment on the EFTPOS and those days, those days are gone in New Zealand, like long gone. You can see open banking is like biggest disaster. We ever started working on. And the tax thing is like, just not, there is no appetite to be, to do any innovation anymore. So from the government side or anything, cause we do work with jurisdictions that are actually like on forefront of this.

And you can see it's like a day and night approach. So yeah, topic for another day. But the, the other actual, like question that's kind of a goes with this group is like, I swapped things and tokens and stuff for work, not for speculation. You know, if I want to do a transaction on one chain, I need to pay for it.

And that requires me to swap a current, like from something to pay for it. That shouldn't be like a taxable event. Cause that's like, I don't know if I want to do a transaction on Ethereum, I need Ether. If I want to do it on Polygon, I need Matic. If I go somewhere else, I need like Algorand, I need Algo. So.

That's like, I need to do that to do an action, not to speculate and see, Oh, will I get the 10 percent gain on it or not? Like, I don't care about that. And, you know, to, to do my work, we need to do that. Like, you know, a lot of this transaction, I'm not going to be writing my gains on the piece of paper or in a spreadsheet to report on a tax. Like, is that what's expected from us?

Jodi: In, in, in those situations it is. It is silly.

Kevin: And, and maybe just to, to follow up on that as well Matisse is, yeah, I think this, this discussion is kind of the start of how do we, how do we kind of bring this to a, to a bigger forum and raise this as a, as, as a problem so that people can understand it.

So there is a bit of education required as well. And so yeah, very much the start of how do we, how do we further this discussion, Sean?

Sean: Yeah, I was just saying, and just to Matisse's point is that a lot of cryptocurrency is moving from being speculative assets to actually utility. And, and, you know being a utility you know, it shouldn't be taxed cause, you know, like Matisse gave a great example where we're using this just to do business, like, it's just like another currency.

It's like taxing your holdings in Great British pounds or, and if you're not, if you're using that, because that's how you're managing your life Right, so it's fun to be able to do everything on your own. It is absolutely possible to change, but the road is long and to change it, but it is, it's actually engaging with the right people in government, and I've done this a lot in my previous life.

I've worked for Visa and for banks as well. And there's some legislation, all legislation is well intended. But it often has unintended consequences and particularly new stuff and new fields. Like cryptocurrency and the first step is actually education and educating the right people.

So it requires, but it requires investment in terms of, it can be individuals like even you know, Web3 for example. It can as a group can lobby the government and then and, and look if there's a. If there's a big enough injustice in the way the rules are set, then then then you generally will get listened to, but on the flip side, when you're talking about the accounting firms, the trouble is with accounting firms, they actually want it to be complicated because that generates fees for them.

Jodi: I agree with, so when I first did some training at IRD and was, you know, starting to learn about, it was predominantly Bitcoin, they did have quite a big focus on, there was different types of crypto, so there was utility tokens, there was, if there were asset backs, there were, and I remember the training that, that specifically said, you know, you need to look at what type it is. And I, I feel as though it's definitely moved completely the other way with them, is to, it's just very broad brush, it's crypto. And that's it.

[00:41:59] Closing Remarks and Next Steps

Kevin: So, potentially, and I'm just conscious of time as well one, one thing I'll mention is that we're going to collect everybody's questions and other bits that we don't get to today.

And we'll, we'll feedback on, on that as well. So this is just very much step one in terms of discussion. One thing that we've been floating around as well is I think to Sean's point is, as these things sort of gain momentum and more businesses are impacted by it, etc just forming small groups of people that are staying in touch and communicating on these sorts of problems can be really helpful.

I know the IR we've had them on these sessions before talking about some of their policies, et cetera, they would be interested in learning more about the experiences that businesses are having, but obviously having a group of people that are communicating on it that they can go to is also very helpful.

So they will go to some of the associations and the bodies and blockchain NZ and the likes. but for the, for the companies and the people that are interested in maybe forming a working group, but maybe a sort of having a chat on tax related issues every couple of months. We're very happy to, to stand up something like that and kick it off if people are interested. So I'll just throw that out there as well.

Jodi: It would be quite interesting to know. So Lightning Pay did a trial, didn't they? They had test cases of businesses that used it around. It would be interesting to know.

Maybe it's not got to their accountants yet. I don't know how they, how that got incorporated in. Well, first of all, if there was enough uptake to make it worthwhile, you know, have worthwhile having a look at, but then how did those transactions get incorporated into their accounting system?

Kevin: That's where the power of these discussions is really, really there is that everybody else, everybody's going off and doing this in silos at the moment and getting either different feedback or learning something that's not necessarily being shared across the ecosystem.

So if we can have those, those discussions openly and solve them collectively, I think that's really helpful.

Jodi: I can just run through a couple of those questions that are on that. So there was one about From Andy about the rates that you use. So for Forex, IRD give you the rates. So this would be where you are wanting to use some sort of crypto tax software, like a coin ly for its limitations.

What it will do is it will. Import your transactions from the blockchain with the timestamp from the TX hash, and it will, it's inbuilt that it goes off to the market and brings you in a market value. If you didn't wanna use something like that, you'd be looking at something like a CoinGecko or a coin market cap.

If you go into those historically. You'd need to make sure that you convert your in New Zealand dollars, but you just need to pick a method and be consistent with it. So if you say, right, for my valuation, I am going to use the opening value that CoinGecko gives me on that day every time, that's okay, but then you need to be consistent in how you use that every time.

Can't say, oh well, at this date it was better for me to use CoinGecko opening value, but for all these dates it was better for me to take Binance or CoinMarketCap and take the closing value or the average value. You just need to pick a method. And be consistent in your application of it, but things like that, so I was just reading that comment about the crypto tech software, and that makes my heart sing, because I am always saying, they were going, clients look at Coinly and they go, it says I can do my tech report in 20 minutes.

And you're like, no, you can't do your tech report in 20 minutes. Crypto Coinly and all those softwares are awesome with what they do. Because anybody that thinks about tracking crypto in a spreadsheet are, no offence, idiots. It's great. It allows you to import, the help is awesome, it allows you to import.

Your transactions by CSV, by API, it is great at what it does, but that, the number it throws out, I have never, ever found one that, that is the number ever, it still needs manual review to apply the tax rules against it. It just does its best. It tries to match things as best it can. Well, anyway, so what you'll find is you'll import your EasyCrypto transactions, and when you give EasyCrypto your money, it will be in New Zealand time. But what you'll find is that you've bought the crypto before you gave them any money. because it will be on UTC on the blockchain.?

Louise: This sort of stuff, it is funny because we have people who ask us when the price is locked in because of being in New Zealand. So they think that if we lock in the price in the future that they can get a better price.

Jodi: It's not too bad if somebody does it at night, because it comes, because the other side of it comes through on the same day, so potentially it sometimes matches them.

If you do it in the morning, it's happened the day before on the actual project, and it just, so there's heaps of things. The softwares are great, you know, you couldn't make a start without them, but there are so many. People just do not understand it is not the answer to your prayers. It still requires, and that's my job, manual review to make sure that, you know, it's tagged something as a send and then you've bought it back later.

And if it was a share or something like that, you probably wouldn't be that worried because the fluctuation wouldn't be that different. But because it's crypto, the difference between In there could be a massive gain or a massive loss that has not been accounted for properly. So that's if I can make you understand one thing from today.

Please do not give your accountant your coinly report or whatever and say that's the number that you need to put in your tax return. Because no, it just, it's, I think as well because easy crypto is not an exchange. So for easycrypto, you basically have three transactions. You have, you send your money to easycrypto, New Zealand dollars, easycrypto convert those New Zealand dollars into To crypto and then they send that crypto to your wallet.

So there's three transactions and often to confuse things, easy Crypto will source their crypto from a Binance or whatever. And so then if you've got a Binance account, it thinks that it's, yeah, . So is it, even if you think, oh, it's dead straightforward, I've used Easy Crypto on Binance, New Zealand, what could possibly go wrong? Heaps. So, it's just tricky, and, but yes, if you want, if you're wanting to do your own, I would recommend using a tax software, make sure that it is compatible with New Zealand rules because lots of them cover multiple jurisdictions, but they don't all cover New Zealand, make sure that your settings are correct for New Zealand tax rules, And don't take the first number it spews out at you. It, you need to go through line by line. And a big part of that is just going through the reconciliation on the dashboard at the end and checking that what it says you own agrees to what you have currently in your wallet.

Kevin: Awesome. Thanks, Jodi. Just aware of time. So I have just shared a link to the survey form in the chat. So please fill that out. That only not only orients us in terms of today's session, but also gives us feedback on the other topics that you want to hear about as well. This was a warts and all discussion. Where there's, there's things that are that are working well and other things that we're, we're sort of need to work on as a, as an ecosystem.

So it's good to surface those and, and sort of constructively work on them. I think it'd be great to have a, a New Zealand product out there that kind of fits from a cost perspective in with merchants, other costs of doing accounting, et cetera. So having those sorts of things would be great.

I will schedule a catch up for people that want to keep talking about this topic. And we'll have some follow up topics on how we address some of the problems here as well. And come up with some solutions because it's not all about the problems. But thank you very much for coming. Thank you, Jodi, for sharing your experiences.