Regulation for the cryptocurrency sector has been an uphill battle in many jurisdictions as it seems there are still a lot of dissenting opinions about how exactly it should be handled or permitted. However, in a few countries as well, efforts to officially recognize crypto as legal are beginning to pay off.
Now, according to information published by New Zealand’s tax regulators, cryptocurrency will be legalized and employees could begin to receive salaries in digital currency. The ruling is expected to begin officially, from the 1st of September.
New Zealand’s Inland Revenue Department recently released a tax information bulletin on Wednesday the 7th of August. It clearly states specifics about the new ruling under 91D of its Tax Administration Act 1994, which allows employers of labor disburse remunerations in crypto, with tax provisions as well.
The ruling gives a few conditions for this to be met. For example, for crypto assets payment to be subject to income tax requirements, it must be payments that form the workers’ normal salary and there should be a fixed amount. This means that other types of payments like shares or equities, do not fall under this ruling and may not be paid in crypto.
Furthermore, the ruling only applies to salary earners, also including any payments for periodic services rendered, commissions and additional benefits. This means that self-employed individuals will not be a part of the new ruling.
There is also no provision for any cryptocurrencies that cannot directly be converted to fiat currency on an exchange. The publication states that:
“In the current environment where crypto-assets are not readily accepted as payments for goods and services, the Commissioner’s view is that crypto-assets that cannot be converted directly into fiat currency on an exchange are not sufficiently “money-like” to be considered salary or wages.”
The ruling also does not allow the use of any crypto assets that have been subject to a lock-up period. The crypto assets to be used must also “function like a currency”. Most specific of all the conditions is probably the part of the ruling that requires that “the value of the crypto-asset is pegged to one or more fiat currencies.” This suggests that only stablecoins will be usable as payment for salaries, significantly reducing the number of virtual assets that will not raise any violation issues.
In addition, workers in many countries are automatically taxed straight from their salaries. In New Zealand, this system is called Pay As You Earn (PAYE) and it will also apply to cryptocurrency salary payments.
New Zealand joins a list of countries that are making considerable effort to ensure regulation and taxation of their respective cryptocurrency sectors. In the United Kingdom, for example, the tax authority – Her Majesty’s Revenue & Customs (HMRC) – has begun requesting specific data about customers from crypto exchanges, in a bid to weed out tax evaders.