Waikato Business News May/June 2018

54 WAIKATO BUSINESS NEWS May/June 2018
Cryptocurrency and tax
Over the last decade, the use of
digital or virtual currencies, known as
cryptocurrencies, have grown in popularity.
Cryptocurrency is a
medium of exchange,
created and stored on
the blockchain. Some refer to it
as the ultimate digital currency
that will gradually replace
money. This is due to the fact
that it is secure and unregulated
by the banks as it is completely
decentralised with no server or
central authority.
Cryptocurrency is based on
a cryptographic scheme that
aims to provide security, privacy
and trust in the currency
by its holders. Common uses
include trading, holding as
a long-term investment, and
increasingly as a means of payment
by businesses willing to
accept it.
Cryptocurrency has no
intrinsic value or physical
form, yet it is becoming
extremely valuable. There are
at least 37 virtual currencies
in circulation, with the most
popular being Bitcoin, where
a single piece is valued at over
$9000 NZD.
TAXATION AND THE LAW
> BY TRACEY CLARK
Tracey Clark is a PwC director based in the Waikato office.
Email: tracey.e.clark@nz.pwc.com
Bitcoin was announced in
2008 as a peer-to-peer electronic
cash system to cut out
the middle man and prevent
double spending and has been
credited to an unknown programmer,
or group of programmers
going by the pseudonym
As IRD is still
considering the
tax treatment of
cryptocurrency,
they have provided
guidance by advising
the treatment to be
similar to that of
gold bullions, whose
proceeds on sale are
considered income.
of Satoshi Nakamoto, leaving
the real founder a ghost.
The first bitcoin was purchased
in May 2010, when a
developer used 10,000 bitcoin
to pay for two pizzas ($41). In
December 2017 this would have
translated to $179,000,000.
Currently there are approximately
17 million bitcoins in
circulation, with a finite number
of 21 million set for circulation.
It’s estimated the final
bitcoin will be mined in 2140.
Many other cryptocurrencies
have since been released.
Unlike long existing virtual
currencies, such as those found
in online gaming communities
which only have value within
the community they are used,
cryptocurrencies are convertible
virtual currencies with
equivalent real currency value.
The currency itself however
is very volatile. In 2009 one
bitcoin was worth $0.003. By
December 2017 it was worth
$17,900 and rising. The value
then fell 2/3 of its value to
$6000 two months later. This
volatility is the reason some
investors are weary and staying
away. The volatility is due to
the fact that the value is based
on perception and not a bank
or regulator, meaning the value
can swing dramatically either
way, causing either huge gains
or substantial losses.
In 2017 PwC accepted its
first payment in bitcoin, with
this decision based on the
premise of embracing new
technology. While it is still too
early to tell how wide cryptocurrency
adoption will spread,
some New Zealand retailers
have already begun accepting
bitcoin as a form of payment.
Unsurprisingly, this has led to
the Inland Revenue (IRD) considering
the tax treatment of
such currencies.
For tax purposes, cryptocurrency
is treated as property, not
currency. This means that the
foreign currency gain or loss
provisions do not apply. However,
if a New Zealand business
accepts cryptocurrency as a
form of payment, the amount
is treated as taxable business
income. IRD see this as a barter
transaction and due to volatility,
will require the business to
calculate the value of the cryptocurrency
in NZD at the time
it is received. Cryptocurrency
merchant processors are able to
perform this function instantly.
Where this function is unavailable,
the amount is converted
using a reputable exchange rate
to the NZD equivalent at the
relevant date. This may require
converting the cryptocurrency
into another foreign currency,
such as US dollars, to then convert
into NZD.
Any gain on sale of cryptocurrency
is assessed by considering
the original purpose
for acquiring the currency. As
cryptocurrency is considered
property, if the currency was
acquired with the purpose of
disposal, any proceeds made
from selling the currency are
taxable.
The IRD consider that due
to the nature of cryptocurrency,
it is unlikely that a person
would acquire it without the
intention to sell or exchange it.
This means that the majority of
gains made on disposals would
give rise to a tax liability. This
is due to that fact that cryptocurrencies
generally do not
produce an income stream or
provide benefits to the holder,
except when they are sold
or exchanged. Furthermore,
any gains or losses must be
recorded at the time they occur,
and not merely accounted for
once the currency has been
cashed out.
As IRD is still considering
the tax treatment of cryptocurrency,
they have provided guidance
by advising the treatment
to be similar to that of gold bullions,
whose proceeds on sale
are considered income.
This area is likely to continue
to grow and more guidance
is likely to be released,
further to the questions and
answers Inland Revenue
released in March 2018. If you
invest or trade in cryptocurrencies,
be sure to keep an eye out
on the Inland Revenue’s further
developments, as they intend
to refine tax treatment as more
information becomes available.
The comments in this article
are of a general nature and
should not be relied on for specific
cases. Taxpayers should
seek specific advice.
Waikato report on deprivation an ‘eye opener’
Areas within the Waikato
region rank among the
most deprived areas
in New Zealand, according to
a Waikato report on the new
Index of Multiple Deprivation.
The report called Socioeconomic
Deprivation in the
Waikato Region – using the
Index of Multiple Deprivation
to understand the drivers
of deprivation was presented
to the Waikato Plan Strategic
Partners’ Forum at Waikato
Regional Council.
Waikato Plan programme
manager Rachael McMillan,
who wrote and presented the
report, told those in attendance
that it is easy to focus on deprivation
at a regional scale but
miss pockets at a local level
that deserve greater government
attention.
“This report shows us that
the mix of drivers for deprivation
across the territorial
authorities are totally different.
You can’t do a blanket policy
across everything. We need
to be dealing at community
level.”
The New Zealand Index of
Multiple Deprivation (IMD)
was released by the University
of Auckland last year.
It was developed using data
from government departments,
Census statistics and methods
comparable to current international
deprivation indices to
measure different forms of disadvantage.
It looks at 28 indicators
which are grouped into
seven domains of deprivation:
employment, income, crime,
housing, health, education and
access to services. These combine
to create an overall IMD
ranking for the 5958 data zones
that the country is divided into.
The index also ranks deprivation
per domain.
“The report has thrown up
some surprising statistics that
just goes to show that even
district level deprivation can
mask real local issues,” said
Mrs McMillan.
For instance, the Matamata-Piako
district overall has
low deprivation but has the
second highest deprived data
zone in the country for education;
similarly, Hamilton has
the second most deprived data
zones for crime and income,
and the third most deprived for
health.
“It’s a bit of an eye opener,
and it’s great to know this
resource exists and that we can
access it online.”
The Waikato report was
compiled as a tool to help drive
decision making for targeting
funding and initiatives to
improve social outcomes.
“The IMD is part of building
an understanding of our
communities and what their
needs are. We need a grounded
approach to guide decision
making and this tool adds to the
building blocks of our knowledge,”
said Mrs McMillan.
The report showed that education
was a big issue in the
Waikato, as was income, crime
and health.
“Housing is better but
everything else is worse than
the New Zealand median.”
“The IMD helps to show
where we should focus our
efforts.”
Waikato District Health
Board senior funding manager
(Strategy and Funding) Regan
Webb said the report was “very
helpful” for the DHB to use
in its planning processes. “We
are currently developing our
10 year health systems plan to
ensure the services we provide
and fund best meet the health
needs of our population into
the future,” Mr Webb said. “It
will also support us in our collaborative
work with councils
on joint policy and planning
for local communities.
“We want to ensure that
everyone has access to good
quality healthcare no matter
who they are or where they
live, and that they can live long
healthy lives. The information
in this report will help us do
this.”
Smart Waikato Trust chief
executive Mary Jensen said:
“With our work with 22 secondary
schools around the
region as part of Secondary
School Employer Partnerships,
we do see the need to have
individual place-based policies.
The disparity across the
region is enormous. If it can be
pinpointed through this type of
work that is very useful.”