Most of the commonly used exchanges such as Coinbase, Binance, Easy Crypto and the like are subject to strict AML /KYC regulations. Consequently, the identity and trading history is linked to the identity of the respective accounts/ wallets.

Despite crypto being decentralized, blockchains are fully transparent. Every transaction is permanently recorded on a public ledger. Advanced analytics tools, allow the authorities to trace funds to personal wallets i.e. back to the respective individuals.

IRD Audit Activity is increasing across the board

• 5,100 audits opened in 2024 (up from 4,200 in 2023)
• 4,300 audits closed, resulting in $460 million in additional tax (up from $397 million in 2023)

What should you do if you have crypto?

Assuming that crypto holdings are anonymous could be an expensive tax strategy in the long run. If you hold crypto assets you should be thinking about your tax obligations and the risks of not declaring income from it.

As not all information is recorded in blockchain a good record keeping is imperative for supporting your tax position.

If you would like help reviewing you crypto position or responding to an IRD enquiry, or just understanding what your obligations are do get in touch.

Foreign Trusts & Inheritances: What You Need to Know

Questions often arise whether a sum of money or property received from overseas is taxable in New Zealand? In many cases, these payments arise from inheritances or family trusts based offshore. While the assumption is often that such transfers are tax-free, the reality can be quite different—especially when the distribution is deemed at law to come from a foreign trust.

IRD has released a draft interpretation statement (PUB00494), titled “Income tax – Whether money or property received by New Zealand tax residents from overseas is income from a foreign trust.” It provides updated guidance to help determine if overseas-sourced receipts are taxable distributions, beneficiary income or non-taxable gifts/inheritances.

What is the issue?

The first crucial step is assessing whether the offshore arrangement constitutes a foreign trust under NZ tax law. This assessment is made regardless of how the arrangement is classified overseas. For example, an estate or civil law succession may not involve a trust structure in the foreign country, but could still be treated differently under New Zealand’s tax framework.

If the arrangement does qualify as a trust, the next question is whether it’s a foreign trust—meaning none of the settlors have ever been New Zealand tax residents. If so, distributions from the trust to NZ beneficiaries are potentially taxable, unless they qualify as exempt capital gains or corpus, subject to the ordering rules in subpart HC which override trustee characterisation and determine the components of the distribution for NZ tax purposes. Distributions regardless of how classified in the foreign jurisdiction are considered to be made in following order:

1. Trustee’s current year income
2. Accumulated income
3. Capital gains
4. Corpus

If sufficient records are not available to support the makeup of the distribution, the entire amount may be taxable.

Legal Classification and Cross jurisdictional complexity

A key part of the draft statement is determining whether the arrangement constitutes a trust under New Zealand law. The statement also looks at scenarios where the foreign source is an estate, particularly under civil law systems (e.g., France, Germany, Switzerland), where assets typically vest in heirs immediately on death. In such cases, while no trust arises, NZ tax obligations may still exist—for example, if the asset earns income before being transferred, the recipient may be deemed to have held it from the date of death and may have a reporting obligation for interim income.

By contrast, in common law jurisdictions (e.g., Australia, UK), the estate is often administered via a formal trust-like structure. However, the executors or administrators are typically seen as trustees for the deceased, not for the beneficiaries, until assent occurs. This distinction is important for determining when a trust relationship (for NZ tax purposes) begins and how the distributions are treated for income tax purposes.

Transfers of Land Within a Consolidated Group Clarified

Inland Revenue has issued Technical Decision Summary TDS 25/13, addressing how land transfers within a consolidated tax group are treated under the Income Tax Act 2007. The ruling confirms that certain land sales by entities within a consolidated group do not give rise to taxable income under sections CB 6 and CA 1(2), provided the transactions meet specific criteria.

Background:

The case involved a tax consolidated group comprising a holding company, an operating entity (Company A), and several inactive sister companies. Company A held business land on capital account, and it also had pre-consolidation tax losses available for carry-forward.

All group entities were ultimately owned by Person A, who directly owned the holding company and, through it, indirectly controlled the subsidiaries. In an effort to diversify investments and reduce concentration risk, Person A decided to realise value from Company A’s land holdings. This involved:

1. Initial Sale: Company A sold a parcel of land to the holding company at cost. The holding company then sold it to a third party at market value, intending to distribute the resulting capital gain (via liquidation) back to Person A.
2. Further Sales: Additional land, that was already divided into numerous lots, was to be sold at cost by Company A to the sister companies, which would immediately on-sell the land to external buyers at market value. These sales were structured across multiple entities to facilitate marketing and distribution.
3. Retained Land Strategy: A final portion of land owned by Company A was earmarked for long-term holding. It would be sold to newly created, wholly-owned sister companies, which would lease it back to Company A for ongoing trading purposes.
4. Purpose for liquidating the holding company was to access the capital gains from initial sale of land and the shares in sister companies out of the Holding company to Person A.

Tax Council Office concluded:

• Sections CB 6 and CA 1(2) did not apply to the land sales made to third parties. Therefore, the profits from those sales were not taxable.
• The group’s intragroup land transfers were not affected by FC 1 and FC 2, allowing the land to be transferred at cost rather than market value. Because the entities were part of a consolidated group, they are treated as a single economic unit, meaning a company cannot distribute value to itself.
• Section BG 1 (anti-avoidance) did not apply. Inland Revenue accepted the commercial rationale behind the structure, including investment diversification and asset management goals.

Takeaway:

This decision provides useful clarity for groups considering asset realignments within a consolidated tax structure. When carefully managed and supported by genuine commercial motives, intragroup land transfers may not trigger tax liabilities—even where assets are ultimately sold to third parties for profit.

Tax Residence and the Government Service Rule

IRD has released a new interpretation statement, IS 25/17: “Tax Residence – Government Service Rule,” offering updated guidance on how the government service rule in the Income Tax Act 2007 applies. It also provides insight into how New Zealand’s double tax agreements (DTAs) may interact with this rule in cross-border situations.

This latest statement replaces earlier documents IS 16/03 and CS 21/02, both of which addressed the tax treatment of individuals working abroad in government roles.

Why Tax Residence Matters

Tax residence is a cornerstone of income tax law, as it determines the scope of a person’s tax obligations in New Zealand. Under the Act:

• New Zealand tax residents are liable for income tax on worldwide income, other than exempt or excluded income. They may also be eligible for a credit for foreign tax paid.
• Non-residents are only taxed on New Zealand sourced income, other than excluded or exempt income.

In situations where an individual is considered tax resident in both New Zealand and another country, DTAs help resolve potential conflicts by allocating taxing rights between the two countries.

What Is the Government Service Rule?

One of the overlooked residence rules is the government service rule, which deems individuals to be New Zealand tax residents if they are overseas in service of the New Zealand Government. This rule applies even if the person would be considered a non-resident under the general residency criteria.

Interpretation Statement IS 25/17 explains how this rule should be applied in practice and outlines how relevant DTA provisions may affect the outcome in international contexts.

Staff Changes

Janine will be leaving us in June as she is moving to Whangamata, to embark on a new and hopefully more relaxed chapter in life. She will be taking up a role Pauanui Club, so do go and see her if you are in the area. Whilst she will truly be missed, we wish her well and hope to see her soon.