The growing scrutiny on cryptoassets by the Inland Revenue Department in New Zealand is concerning many traders who potentially have not filed their income tax returns accurately to reflect their crypto income.
Or alternatively you have chosen to wait and see what is happening in this sphere or to see if the IRD will find the crypto transactions.
Many believe that dealing with foreign crypto exchanges means IRD will not see their transactions which is a flawed logic as detailed below.
The IRD have access to crypto exchange data both here and overseas and in the Inland Revenue’s recent publications online and by mail they emphasise the importance of accurately reporting cryptoasset income or potentially facing hefty penalties.
If you already have received a letter from the IRD in New Zealand Titled “Inland Revenue is reviewing cryptoasset activity” then they will have access to transactions from crypto exchanges including Easy Crypto, Binance and Independent Reserve and will be matching those transactions to your income tax returns and bank statements.
Here’s what you need to know to ensure compliance and avoid potential severe penalties.
Inland Revenue is looking at bank accounts and crypto exchanges, including offshore crypto exchanges and then matching that data to the tax returns. If you’ve engaged in cryptoasset activities, they’re likely scrutinising your returns as you read this.
The Red Flag
The red flag for IRD is when income declared does not match the data extracted from the exchanges and your bank accounts.
If you have reported crypto asset income, Inland Revenue requires detailed calculations for each tax year, along with your end-of-year holdings.
This transparency is crucial for an IRD review and will require the supporting documentation from your crypto exchange that matches your bank statements.
Using online tools such as Koinly given the complexity of calculating cryptoasset income, can help ensure accuracy in your reporting. There are many other such tools out there which can manage your complete tax reporting including the losses.
Engaging a Tax Professional.
The complexity of cryptoasset taxation might necessitate professional assistance. Engaging a tax lawyer can ensure that your reporting meets all requirements and you can get assistance with a voluntary disclosure that could reduce your shortfall penalties by up to 100%
Click here to get help from Mary
.
The Benefits of Voluntary Disclosure
The advantages of coming forward early and making a voluntary disclosure can significantly reduce penalties, with potential reductions of up to 100% on shortfall penalties if full disclosure is made. Acting proactively is in your best interest.
There is a specific process for making voluntary disclosures, including updating returns with detailed income calculations and end-of-year holdings and writing to the IRD.
We can act on your behalf and deal with the IRD with your voluntary disclosure.
The Inland Revenue may escalate your review to an audit, which could lead to more severe penalties if you fail to respond.
Ensuring your cryptoasset activities are fully compliant with Inland Revenue requirements is essential. Whether you handle it personally or seek professional advice, taking prompt action now can protect you from unnecessary penalties and stress.