The New Zealand Commissioner of Inland Revenue has issued a pair of binding rulings (BR) under Section 91D of the Tax Administration Act of 1994 stating that the payment of remuneration to an employee in crypto-assets (e.g., Bitcoin) will be treated as part of the employee's salary or wages and is therefore subject to Pay as You Earn (PAYE) withholding.
BR Pub 19/01 provides that the payment of remuneration to an employee in crypto-assets as part of the employee's regular remuneration will be treated as part of the employee's salary or wages and is subject to PAYE. In BR Pub 19/02, the Commissioner ruled that the payment of incentives or bonuses in crypto-assets to an employee arising from employment is also subject to PAYE.
The rulings apply only where the crypto-assets being paid: are not subject to a “lock-up” period; can be converted directly into a fiat currency (on an exchange); and either a significant purpose of the crypto-asset is to function like a currency or the value of the crypto-asset is pegged to one or more fiat currencies. Commentary to the rulings explains that a Fringe Benefits Tax (FBT) applies where it is determined that the payment is not assessable income subject to PAYE withholding. Payments of crypto-assets not subject to PAYE are fringe benefits subject to FBT.
BR Pubs 19/01 and 19/02 appear in the Inland Revenue Department’s Tax Information Bulletin for August (Issue 7, Vol. 31, August 2019
Edward Kowalski, Esq., is Manager of Payroll Information Resources for the American Payroll Association.