The taxation authority in New Zealand has officially declared that it is legal to pay wages in crypto-assets. For clarification, the term ‘crypto-asset’ refers to “digital assets that use cryptography and blockchain technology to regulate their generation and verify transfers.”
In a bulletin published last week, Inland Revenue, the tax authority of the country, labelled crypto-assets as legitimate remuneration for employees. Some conditions of this ruling are that the payment is only eligible for “services performed by the employee under an employment agreement”, and have to be “for a fixed amount”. Therefore, crypto-assets cannot be provided as “shares” in income tax classifications.
Importantly, crypto-assets can only be paid to salary and wage earners, and not self-employed taxpayers. They must be able to be converted directly into fiat currency on an exchange. This is because according to the tax authority, the crypto-asset’s function is to function as a currency or to be pegged to one or more fiat currencies.
The ruling provides a detailed description of the characteristics that are needed for crypto-assets to function as money. They should be divisible, fungible, durable, transferable mediums of exchange and difficult to counterfeit. However, the report distincts crypto-assets from ‘money’, as they are not issued by governments and are not legal tender. Most importantly, due to the extreme volatility in their prices, they may not be a good store of value.
However, given all these conditions the report states that the ordinary meanings of ‘salary’ and ‘wages’ are now wide enough to encompass crypto-assets. The tax authority recognises that nothing in the Income Tax Act prevents the interpretation of salary and wages to include monetary payments in cryptocurrency.
New Zealand is now one of the many countries which is improving regulation in the cryptocurrency sector. The announcement of Facebook’s Libra into cryptocurrency has made governments across the world question the extent of their regulation in the sector.