Blog Archives

Cryptocurrencies: IRD Tax Treatment; Fraud Warnings

4/16/2018

Tax Treatment of Cryptocurrency

IRD is till working out the tax treatment of cryptocurrency. But it has made up its mind on some things. You can read all about it here. The main points so far are:

For tax purposes, cryptocurrency is property, not currency. This means foreign currency gain or loss provisions do not apply.
Cryptocurrency received as payment for goods or services is business income, which is taxable. This is seen as a barter transaction and you’ll need to calculate the value of the cryptocurrency in NZD at the time it’s received.
Cryptocurrency is considered property for income tax purposes. So that means that the proceeds you make from selling it are very probably taxable.

Cryptocurrency Fraud Warnings

NZ Police in association with City of London Police have just released a warning. See below for the PDF.

Apparently, fraudulent websites alleging to offer cryptocurrency investments are dishonestly using the image of Martin Lewis, the founder and editor for moneysavingexpert.com, as an endorsement for their companies. However, Martin doesn't do adverts. See his blog post for more info here. These sites are also falsely stating that Dragons Den back their schemes.

nifb_alert_-_fraudulent_cryptocurrency_investments_and_fake_endorsements.pdf
File Size:	476 kb
File Type:	pdf

Download File

Our advice:

Don't assume it is authentic just because it looks good
Don't rush into any investment, including cryptocurrency
Consult a financial advisor

More info is available at NetSafe, especially re scams. And, just for the record, we don't claim any endorsement by Martin Lewis, his website, NZ Police, City of London Police or NetSafe. Any copyrights belong to their legal owners. We are merely making you aware of what is going on out there. Keep safe!

RING-FENCING RENTAL PROPERTY LOSSES: PART 1

4/5/2018

Shock! Horror! IRD have released a proposal to ring-fence rental property losses. What does that mean for you?

Current situation

At present if you own a rental property (sole trader, partnership, LTC) and it makes a loss, then you can offset that loss against your personal income or the income of the shareholder/s (in the case of an LTC). This means you pay less tax or get a tax refund. In IRD speak, that is

"Currently investors (particularly highly-geared investors) have part of the cost of servicing their mortgages subsidised by the reduced tax on their other income sources."

Thousands and thousands of Mums and Dads across New Zealand have become landlords in this way, and the tax refunds help pay for the mortgage.

Possible Impact

From 2019-20 onwards (or possibly phased in), losses won't be passed on to the owners, so no more personal tax refunds. Instead, ring-fenced residential rental* or other losses from one year could be offset against:

residential rental income from future years (from any property); and
taxable income on the sale of any residential land.

Solutions for Investors

IRD make this comment:
It is suggested that the loss ring-fencing rules should apply on a portfolio basis. That would mean that investors would be able to offset losses from one rental property against rental income from other properties – calculating their overall profit or loss across their portfolio.

So, our initial thoughts are that investors with negatively-geared property need to look at

paying down debt to make the property cashflow neutral
buying cash-flow positive property to get income into the portfolio to offset the losses
re-budgeting to account for the fact that there may not be any tax refunds
consider restructuring - although you need to be careful that this is not done purely for tax purposes, as this could be considered tax avoidance by IRD.

Don't Panic

This is not law yet
You have time to implement solutions
As more information comes to hand and the proposals are firmed up, we will make further recommendations

Where to Read the IRD Proposal

Goto this page

How To Make A Submission

Officials invite submissions on the suggested changes and points raised in this issues paper. Send your submission to policy.webmaster@ird.govt.nz with “Ring-fencing rental losses” in the subject line.

Ring-fencing rental losses
C/- Deputy Commissioner, Policy and Strategy
Inland Revenue Department
PO Box 2198
Wellington 6140

The closing date for submissions is 11 May 2018, so if you want to say something, you'd best be quick about it!

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