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Trading in crypto? Prepare to be reported!

Tax Alert - November 2022

By Sam Kettle, Vicky Yen & Troy Andrews

Trading in crypto? Prepare to be reported!

We are living in a digitised world where crypto-assets are becoming more popular by the day. Tax authorities have struggled to get visibility over crypto-related income, but now have a solution: to introduce the new Crypto-Asset Reporting Framework (“CARF”), and expand the scope of the existing Common Reporting Standard (“CRS”) regime. The goal is to allow tax authorities around the world to collect and share information on persons who are trading and transacting in digital assets.

We expect that Inland Revenue and the Government will be looking at adopting CARF and the CRS amendments in due course, particularly as they are likely to be an OECD minimum standard. What might this mean for you?

CARF will operate similarly to the existing FATCA and CRS regimes, requiring certain service providers to collect information on their account holders and report to tax authorities, who then share the information with the overseas jurisdictions where the account holders are tax resident. The OECD has published a set of model rules for CARF, which is expected to be a global minimum standard adopted by all OECD member countries.

Which crypto-assets will be captured?

In addition to cryptocurrencies, the regime will also capture stablecoins, derivatives issued in the form of crypto-assets, and certain non-fungible tokens (where they can be used for payment or investment purposes or are traded on a marketplace). There are certain exclusions for some limited lower-risk crypto-asset.

Who will have obligations under CARF?

“Reporting Crypto-Asset Service Providers” will be any entities or individuals that as a business, provide services effectuating exchange transactions of relevant crypto assets for or on behalf of customers. This broad definition includes crypto-asset exchanges and anyone else that makes a trading platform available for users, including brokers, dealers, and operators of crypto-asset ATMs.

I think I’m captured as a service provider under CARF – what will I need to do?

Reporting Crypto-Asset Service Providers will need to complete similar due diligence procedures as the existing CRS requirements and AML/KYC obligations, i.e. obtain self-certifications from account holders to verify their identity and tax residence.

To incentivise cooperation, service providers must stop transfers if a valid self-certification is not provided by the account holder within certain timeframes.

Relevant account holders that are tax resident in a foreign (non-New Zealand) jurisdiction will need to be reported to Inland Revenue annually. The reportable information will include personal details (name, address, tax identification number, tax residence, and date of birth), along with transactional information aggregated by crypto-asset type (amounts paid/received, number of units and number of transactions, on aggregate acquisitions and disposals).

The transactions covered include exchanges between crypto and fiat currencies, exchanges between different forms of crypto-assets, and transfers of crypto-assets.

The CRS amendments are aimed at bringing in new, digital financial products within scope, including e-money products, Central Bank Digital Currencies, and crypto-asset investments that are held as investments through a custodian. Some coordination provisions have been included to avoid double-reporting between CRS and CARF.

Amendments have also been announced to improve CRS due diligence and reporting procedures (these largely include additional data points for reporting, further alignment with Financial Action Task Force (FATF) recommendations, tie-breaker tests no longer being relevant, and clarification around acceptance of certification when a TIN number is not provided).

Although adoption of these rules may not be until 2025 or later, there is much to consider and affected persons should start preparing now to be ready in time for post adoption Day-1 obligations.

The new rules may significantly impact customer experience, how will you communicate with your customers and undertake due diligence outreach campaigns with minimal disruption?

What existing data and processes do you have on hand that could possibly be leveraged?

Is an additional budget required to invest in technology and staff?

What build/buy/outsource decisions will need to be made?

Our Deloitte Global Information Reporting team have prepared a more detailed summary of the CARF framework and CRS amendments here. If you would like to discuss these changes and how they might impact you, please reach out to your usual Deloitte tax advisor, or Troy Andrews (New Zealand subject matter lead).

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