Tax Updates: 13 October 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Does the word crypto still make you grimace?

When a client comes to you and has questions for you surrounding their investment in crypto assets, do you still close your eyes, hum loudly and pretend you heard nothing at all?

Well, I suspect you are not alone there, but with the ever-increasing pace of the crypto world, just like AI, one must now accept that it is all around us. Take a deep breath and dive into the murky depths of the crypto ocean, endeavouring to obtain a better understanding of how it all works, and more importantly from our perspective, appreciate the associated taxation implications for our clients who have chosen the crypto asset path.

I’m constantly on the lookout for tax-related articles on crypto transactions, and this time, it is a recent decision of the Tax Council Office (TCO) Technical Decision Summary (TDS) 25/23, which I thought might be useful to share with you if you haven’t already come across it.

I suspect that most of you will be aware of the Revenue’s current stance when it comes to precious metal holdings (particularly gold bullion). While the asset is held, it cannot provide you with any regular return (such as interest and dividends), and therefore, the only reason you must have acquired the asset is for the purpose of resale at some point (no doubt when the value of the asset has increased). Consequently, that disposal should be subject to tax. 

Well, just like precious metals, the same logic can be applied by the Revenue to purchases of crypto-assets, with the exception that, as you may know, there is the potential with certain crypto assets to receive a regular return from the asset over its lifetime (the period you keep it).

As a starting point, when your client whispers those dreaded words “I bought some crypto and now…”, rather than humming to drown out the noise (possibly also to not scare the client away, thinking you have gone insane), just ignore the asset class for a moment and get back to basics. Unlike land transactions, which have their own specific provisions within the income tax legislation, crypto assets presently do not, and therefore you are essentially just considering three age-old taxing provisions:

1. Were the crypto assets acquired for a ‘dominant’ purpose of disposal–section CB 4;
    
2. Were the crypto assets acquisitions and disposals part of a profit-making undertaking or scheme–section CB 3; or,
    
3. Could the disposal receipt arising out of the sale of the crypto asset be considered income under ordinary concepts–section CA 1(2)

Now there is a fourth consideration if you are carrying on a business which involves crypto assets, then section CB 1 with also be in play. However, the purpose of this article is to explore the more grey areas of this world, where in the present case the crypto assets were held jointly by the taxpayers, and were claimed to have been acquired for the dominant purpose of holding long-term to obtain a regular investment return of about 5-10% in the form of staking rewards.

A few facts to set the scene now (although you could of course simply read the 8-page decision yourself):

• The crypto was in early development stages with only a possibility of offering staking rewards in the future;
   
• The taxpayer sold almost 50% of their holding due to a significant price increase shortly post-purchase (not very helpful to their cause in my humble opinion);
   
• A subsequent price drop, some 9-months later, saw them acquire the same crypto again;
   
• Staking rewards did in fact commence some 2-years post initial purchase; and,
   
• 3.5 years post-acquisition, around 30% of the crypto was sold for a significant profit, reinvesting the proceeds in blue-chip dividend-paying shares that were providing a similar regular return to what the crypto was.

Now the smart move in this case, in my view, was that the taxpayers took the proactive approach (one I often recommend to clients who want a little more certainty) of including the disposal gains within their income tax returns, with the subsequent filing of NOPA’s requesting the removal of the income.

The Commissioner issued a Notice of Response (NOR) to reject the Notice of Proposed Adjustment (NOPA) (considering that taxing the gains was a correct application of the law), and, unable to resolve the dispute, the case came before the TCO.

Well, TCO considered each of the three taxing provisions I outlined earlier, and unfortunately for the taxpayer, found against them under each separate provision.

I will not go through the decision in great detail, as instead I consider it more useful to you all if I just point out the key elements which should be front of mind for you, if you are faced with a similar scenario.

Firstly, critically and often not considered by my clients, is that the onus of proof is on the taxpayer, not the Commissioner. So, you cannot just say “I acquired the asset with a dominant purpose of long-term investment” and then expect to just sit back and wait for the Revenue to prove you wrong. Consequently, evidence of your subjective mind at the time of acquisition is very important. For example, if your client is a trust, the trustees should have a trustee resolution which clearly establishes the basis of purchase – I can 100% guarantee that the Revenue will ask for it. And subsequently, if you do have to sell the asset unexpectedly, document clearly why. Was a family member sick or in financial difficulty and needed support; has the economic climate changed materially to the extent that cash is required to reduce debt, etc.

Secondly, unlike the section CB 6 taxing provision for land transactions, where only one of the intentions or purposes of acquisitions being disposal will trigger application, section CB 4 requires that the ‘dominant’ purpose of acquisition is disposal–what was truly important to the taxpayer at the time of acquisition. The test of purpose is subjective, and it may be necessary to draw a careful distinction between motives and intentions and purposes.

Thirdly, from the case law on section CB 4, describing a purchase as a hedge against inflation or as providing an accretion in capital value or as a good investment is not enough. Instead, the totality of the circumstances must be considered, including the nature of the asset, the vocation of the taxpayer, the circumstances of the purchase, the number of similar transactions, the length of time the property was held and the circumstances of the use and disposal of the asset.

Fourthly, if you are under attack from section CB 3, then the Revenue will be looking for the existence of some plan or purpose that is coherent and has unity of conception, involving a series of steps directed to an end result. In this regard, the case law suggests that the undertaking or scheme must exhibit features of a business deal, and the mere realisation of a capital asset in the most advantageous manner is not subject to the taxing provision. And again, as for section CB 4, the taxpayer must have a ‘dominant’ purpose, not just one of multiple–in the present case, to making a profit. There is also a ‘nexus’ requirement–must be shown amount derived was from carrying on or carrying out the scheme.

Finally, is the amount derived considered ‘income under ordinary concepts’, thereby triggering section CA 1(2). Now, since the term is not defined within the legislation, case law has developed a characterisation process which involves considering several factors at once to determine whether an amount constitutes income. These factors include:

• the principle that income is something that comes in;
   
• periodicity, regularity or recurrence of the amount;
   
• the quality of the amount in the hands of the recipient; 
   
• whether or not the amount is a capital receipt; and,
   
• whether or not the amount derived was a passive acquisition.

So next time your client comes to you with a question, avoid the cringe and instead just remember, the disposal gain is likely to be only subject to these three taxing provisions – satisfy yourself that it’s unlikely that any of them have application, then the receipt should be capital in nature.

And my final comments on the topic for now (as it is an ongoing education process):

Consider the pro-active approach of use of the NOPA strategy – if forces the Revenue to review and rule on your scenario as opposed to taking the role of the dice reactive approach. It also avoids any potential application of shortfall penalties.nd” test).

The Revenue’s website certainly contains a lot more commentary on the topic than it used to – so make sure you check there for guidance;

Consider a short-process binding ruling on the transaction, particularly if you are quietly confident that the gains should not be subject to tax. I managed to successfully obtain a ruling recently that disposals of gold bullion were non-taxable, which was certainly contrary to the Revenue’s present published view.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.