IRD issues guidance on taxation of cryptoassets received from airdrop and hard fork

CryptocurrencyTax

9 September 2021

Inland Revenue (IRD) has continued its focus on the taxation of cryptoassets with the release of items considering the taxation of cryptoassets received from airdrops and hard forks.

Consistent with earlier items, IRD says amounts received from disposing of cryptoassets should be treated as assessable income.

Taxation of cryptocurrency airdrops

A crypto airdrop occurs when a cryptoasset is distributed for free to participants. They are commonly used to help a cryptoasset gain attention.

IRD considers the receipt of airdropped cryptoassets to be taxable in situations where the recipient:

  • Has a cryptoasset business.

  • Acquired the cryptoassets as part of a profit-making undertaking or scheme.

  • Provided services to receive the airdrop (and the cryptoassets are payment for the services provided).

  • Receives airdrops regularly and the receipt has hallmarks of income.

If you are disposing the airdropped cryptoassets, IRD considers this to be taxable where a person:

  • Has a cryptoasset business.

  • Disposed of the cryptoassets as part of a profit-making undertaking or scheme.

  • Provided services to receive the airdrop.

  • Acquired the cryptoassets for their disposal.

In many cases, the disposal will be taxable. However, in some cases, airdropped cryptoassets may be passively acquired and will not be acquired for the purpose of disposal.

Taxation of cryptocurrency hard forks

A hard fork occurs when a change in the protocol of a blockchain network results in a new cryptoasset diverging from the existing one.

IRD considers the receipt of cryptoassets from a hard fork to be taxable where a person:

  • Has a cryptoasset business.

  • Acquired the cryptoassets as part of a profit-making undertaking or scheme.

IRD considers the disposal of cryptoassets received from a hard fork to be taxable where a person:

  • Has a cryptoasset business.

  • Disposed of the cryptoassets as part of a profit-making undertaking or scheme.

  • Acquired the cryptoassets for their disposal.

  • Acquired the original cryptoassets for the purpose of disposing of them (where the person receives the new cryptoassets through an exchange).

In most cases, the disposal will be taxable.

The taxation of cryptoassets is an area that is continually evolving. If you have acquired or sold cryptoassets this financial year, please speak with your adviser or contact a member of the Findex Tax Advisory team.

Author: Stephen Richards

Stephen began his career in Tax advisory with a Findex predecessor firm in 1999. He subsequently worked as a commercial and property lawyer, and then as part of the tax advisory team of a Big 4 Firm, before re-joining the Findex tax advisory team in 2014. Stephen advises clients ranging from individuals and family owned businesses through to large corporates and listed companies on all aspects of New Zealand tax law. Stephen has specialist experience in advising on business structures, cross-border and international tax structures, taxation of land transactions, managing complex tax disputes and obtaining binding rulings. He also has an interest in tax policy and tax law reform and can assist clients submitting on and lobbying in relation to the impact of tax changes on their business. With over 20 years tax advisory experience Stephen is a sought-after speaker on tax topics, including presenting training courses for CCH, CAANZ, and TEO Training. Stephen lectures in taxation practice at the University of Otago.