Crypto-Asset Rulings Finalised

In a previous edition of AWIR, I provided an update with respect to two draft Public Rulings that had been released for consultation, which covered the issue of the income tax treatment of crypto-assets received by employees as part of their regular remuneration and bonuses.

To mitigate any potential confusion, the income tax issues surrounding the receipt of crypto-assets as part of the employees’ regular remuneration are discussed in the first Ruling – BR PUB 19/01, while the bonus payment related issues are discussed in the second Ruling – BR PUB 19/02.

BR PUB 19/01 applies to situations where the crypto-assets are payments for services performed by the employee under an employment agreement, are for a fixed amount and form a regular part of the employee’s remuneration. The Ruling concludes that crypto-asset payments generally satisfy the PAYE income payment definition contained in section RD 3, and consequently the payments are subject to the PAYE rules.

I use the phrase “generally satisfy” because it is also accepted that not all crypto-assets will be considered “salary or wages”, particularly in scenarios where the crypto-asset is subject to a material lock-up period or the crypto-asset cannot be converted directly into fiat currency (on an exchange). A fiat currency is a legal tender whose value is backed by the government that issued it e.g. NZD, USD, EURO. Where the crypto-asset payment does not fall within a “salary or wages” definition, then the FBT rules will apply instead.

BR PUB 19/02 on the other hand, applies to situations where the crypto-asset payment to the employee is received in connection with that persons’ employment as an incentive or bonus. The general premise of BR PUB 19/02, is similar to that outlined in BR PUB 19/01, in that the payments will generally be considered a PAYE income payment, subject to the PAYE, unless the crypto-asset cannot be converted directly into a fiat currency, in which case the FBT rules are likely to apply instead.

Once a crypto-asset payment has been determined to be a PAYE income payment, therefore subject to the PAYE rules, both Rulings then discuss how the PAYE amount itself should be calculated, which will often be determined by whether an agreement between the employer and the employee states that the payment of the crypto-assets will be considered a gross or net amount in the employees’ hands. In the latter scenario, a grossing up calculation is likely to be required to determine the quantum of PAYE payable.

The two Public Rulings both take effect from 1st September 2019 and will apply for a period of three years.