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Inland Revenue has outlined its position on wages paid in cryptocurrency.

Inland Revenue publication PUB00344 discusses the implications of an employee getting part of their income in crypto currency. It’s reasonably straightforward. For example, someone receiving $9000 of salary in New Zealand currency and $1000 of salary in cryptocurrency will be taxed on an income of $10,000.

A problem arises if the employee is to receive a cryptocurrency denominated amount. In this circumstance, convert the cryptocurrency amount to New Zealand dollars on the date of payment. That amount is added to the salary and subject to PAYE.

Be ready to justify your conversion rate. It needs to be a rate used by a reputable exchange with a reasonable volume of trading.

Not all types of cryptocurrencies will be subject to PAYE. The cryptocurrency needs to be sufficiently similar to existing notions of wages to be considered a wage. Clause 41 of the document sets out the features of a cryptocurrency wage.

If the payment is subject to “lock-up” and cannot be converted by the employee to currency, for a material period of time after payment, it does not sufficiently resemble a payment of salary or wages and is therefore subject to FBT.

The ruling is to apply from the beginning of the 2020 income year to the end of the 2022 income year. It is, at this stage, only a draft for comment and therefore might be changed.