Step Four:

How do I tell IRD about my crypto gain / loss?

Short answer:

You need to become an IR3 filer as you cannot claim ‘other income’ when filling out a ‘Personal Tax Summery’ (PTS), the default option for most PAYE taxpayers.

You need to ring IRD on the NZ international number 04 978 0779 (fastest and sometimes only way to talk to a real person) and ask them to make you an IR3 filer so you can submit your crypto gain/loss.

This can take several days to take effect so do this first, even before you calculate your loss / gain in cointracking.

Once it has been activated you will see a new option when you sign into myIR that says “File IR3”.

It will auto fill your PAYE income/tax. You need to complete the rest of it. IRD made guide here. If you have no other investments etc. you will just need to input how much interest you earned from bank savings and how much RWT you paid on that (should be given to you by your bank).

Your Crypto Income that we calculated in the previous step should be included in “Other income”. When it asks you to name this income just write “Disposal of Cryptocurrency” or equivalent statement.

In practice what is happening is that your gain or loss of crypto is added to your overall income and then your overall income is taxed accordingly. If you made a huge loss in crypto you might get a large tax refund, and if you made a huge profit in crypto you will be taxed on that, even if you didn’t actually receive any NZD from the disposal.

Long answer:

Now that you have calculated your Crypto Income you can start the process of filing this gain/ loss with the Inland Revenue Department. Most people with a normal job with a normal employer that earn a salary don’t need to file a tax return at the end of each year. It is done automatically for you through a system called PAYE (Pay As You Earn). This is done through you choosing your tax code depending on your expected income for the year and your employer deducts tax from your income accordingly.

If you have ever tried to manually apply for a tax refund rather than going through a tax refund company you may be familiar with a PTS (Personal Tax Summary). This is a very simple form you can fill out online and calculates the amount of tax you should owe IRD from the last tax year and compares it to the total amount of tax you paid IRD from your wages throughout the tax year. If you are found to have over-paid your tax, IRD will reimburse you in the form of a tax refund. If you paid too little tax you will have to make up the difference and pay IRD the tax you owe. The main problem with the PTS is that it doesn’t take into account any ‘other income’ you may have received.

This is why you need to change from being a PTS filer (what most people are, unless you’re self-employed) to an IR3 filer. An IR3 form is a common form people need to fill out if they don’t qualify for PAYE for some reason, are self-employed, or have some other form of income. If you have disposed of a cryptocurrency during the last tax year you need to file an IR3 form as you now have ‘other income’. Yes, this is annoying especially if you haven’t converted any crypto back to NZD and will now lose money in the form of tax for changing one type of magical internet money into another. Alas it must be done if you intend to ever use your investment. If from 01/04/19 till 31/03/20 you don’t dispose of any crypto and only buy crypto with NZD you can go back to filing a PTS for this tax year, next year.

So now that you have accepted that you need to file an IR3, how do you do it?

The fastest and best way to start is by calling IRD and getting through to a person, as the auto phone system doesn’t have an option to become an IR3 filer. If you try ringing the normal 0800 number you will be sent around in circles if you even get through in the first place. The trick is to call the Wellington number for overseas people trying to get in contact with IRD.

The number is 04 978 0779

Ask to become an IR3 filer as you have cryptocurrency disposals to claim.

I was told by the person I contacted that it can take up to 3 days or so to transition you to an IR3 filer. So, do this part as soon as you can.

To fill out and submit the IR3 form you need to login to your MyIR account on the IRD website.

Once the IR3 is available you will have a button appear that says “File IR3”. Click that.

Here is a guide from IRD on how to fill in the form.

Click through to the 2018–2019 tax year.

When you see this set of tick boxes. You need to select any of the options that apply to you.

You should at a minimum have checked:

“Income with tax deducted” (from PAYE)

“New Zealand interest” (for your bank account interest)

“Other income” (This is where we will put your Crypto Income)

If your total income (including any crypto gains) is under $48,000 NZD you may be eligible for Working for Families Tax Credits (WfFTC).

Then it will prompt you to double check your income data and add in your New Zealand interest from your bank accounts. Your bank should supply you with this information. If your bank has not sent you a letter, logon to your internet banking and check your eDocuments and notifications for an interest/ RWT letter.

While you are sorting out your Resident withholding tax (RWT) (the tax on the passive interest you make from your savings accounts) you should ensure you’re using the right RWT rate. See picture for rates. The default rate is 33%, so if your total before tax income (including Crypto Income) is less than $70,00, you should change it.

On the New Zealand interest page input the total interest and RWT numbers your bank gave you.

On the last page you will be asked to input your “Other income”. This is where you put in your Crypto Income that we calculated in the previous step. It will ask you for a type of income, put “Disposal of Cryptocurrency” or equivalent statement. You do not need to put in a named payer.

You will then be asked what you would like done with the refund. If you don’t select any options they will pay it to the nominated bank account. If you owe money it will explain the process of paying IRD.

That’s it, you’re done. If you make any crypto disposals this current tax year you will need to complete the same procedure this time next year. If you make no crypto disposals this tax year you will be able to return to completing a PTS.