New Zealand just became the first country to legalize salary payments in cryptocurrencies!
New Zealand‘s tax authorities have deemed it legal for companies to pay its employees in Bitcoin BTC and other cryptocurrencies. Companies will also be able to deduct income taxes using current PAYE (pay as you earn) frameworks under the Income Tax Act 2007.
The country’s Inland Revenue Department (IRD) published a bulletin (dated August 7, 2019) stating that the ruling was made under the Tax Administration Act 1994. (If you’re not up to speed on your New Zealand tax acts, the 1994 act typically governs the responsibilities of different government departments in relation to taxation.)
There are a few caveats, though.
For one, companies can only pay cryptocurrency to employees working under official employment agreements. Payments also have to be for a fixed amount – “the value of the crypto-asset is pegged to one or more fiat currencies.”
The ruling also states that cryptocurrency-based salary payments must also be able to be “converted directly into fiat currency (on an exchange).” According to the bulletin, salaries must be paid in a crypto-asset that functions like a currency.
In other words, the primary function of the coin must be as a replacement for fiat – this should prevent companies from paying employees in illiquid or otherwise small-time altcoins.
It should also be noted that the ruling applies only to salaried wage earners. Self-employed workers will not be able to take advantage, which is sort of a bummer.
In today’s gig economy, getting paid in cryptocurrency can be a useful tool if you don’t live in a country that accepts the currency you get paid in. In some cases, it can help circumnavigate expensive cross border payment expenses, too.
All things considered, the only reason I see for the Kiwi IRD issuing this update is to allow the taxation of companies that might already be paying staff in Bitcoin, and otherwise avoiding paying the relevant taxes. Meaning, more tax dollars for the authorities.
In reality, it’s probably not a great idea from the employee’s point of view. Sure, your salary might be a fixed fiat amount, but that doesn’t stop the cryptocurrency you’re paid in from fluctuating wildly in price.
It would be quite disappointing to get paid, and 24 hours later see the value of your salary decrease due to market fluctuations. All because you didn’t cash out immediately after getting paid. All that extra hassle, and for what?
The ruling was officially signed by New Zealand‘s director of public rulings, Susan Price on June 27, 2019. It will go into effect for a three-year period beginning on September 1, 2019.