IRD default position is that if you acquired cryptocurrency for the purpose of disposal, gains or losses will be taxable. We’ve previously outlined IRD reasoning for this in our original article (recommended reading) here, and also for miners here. There may be certain situations where IRD default position does not apply and examples of these may be acquiring coins for master nodes (and therefore earning a return), or acquiring certain security or debt coins (and therefore having an equity position).

The justification is on the taxpayer to prove their tax position. A specific coins characteristics provide no justification for the owners original intention. For example, if you purchase a security or debt coin, it doesn’t default to a non-taxable position; you need evidence to support your position (transaction history etc). Furthermore, you can still trade security and debt coins to make profit which is taxable.

Gains and losses are recognised (taxable event) when a coin is disposed of. This includes a trade, as you have disposed of your original coin. For example, if you trade BTC to ETH you no longer have BTC and the gains or losses on BTC will become taxable. Every trade needs to be analysed to determine the taxable profit or loss for the year.

There is no tax on unrealised gains or losses (in most situations). For example, if you purchased a coin for $1 and its price is now $2, the $1 profit you are currently holding is not taxable until you dispose of the coin. If you are currently holding a loss (for example cost of $5, being greater than market value, say $2), if you were to dispose the coin, the loss of $3 would become realised, as you no longer own the original coin. The $3 loss may be able to be offset against profits from other trades, or other income from outside crypto.

Cryptocurrency is recorded as ‘trading stock’ (for traders who are in business) and IRD accept that closing stock can be recorded at the lower of cost or net realisable value. If a coin’s market value at 31 March 2018 (reliably measured through a reputable exchange), is lower than your cost price, there may be justification to record your closing stock at their market value. Therefore you may not necessary need to dispose of the coins to recognise a write down in value. If you are not in business, this business concession may not apply to you.