Dave Ananth points out crypto 'disposals' trigger income tax on any profits in each transaction. He explores the severe risks of not having proper transaction records

By Dave Ananth*

For several years Inland Revenue's approach to crypto assets was largely educational. That has changed: IRD has moved from explaining the rules to actively identifying taxpayers and issuing assessments.

In April 2026 it confirmed that it had identified around 355,000 New Zealand crypto users responsible for roughly 57 million transactions worth about $36 billion,[1] and it has begun writing to people it knows have traded on one or more exchanges.

From 1 April 2026, New Zealand-based reporting crypto-asset service providers began collecting information under the Crypto-Asset Reporting Framework. Their first reports are due by 30 June 2027, with international exchanges expected in 2027.[2]

Most commentary on this subject asks whether crypto is taxable at all. That question matters, but this article assumes it has already been answered, either because an assessment has been issued or because the taxpayer has accepted the position. A different and far less discussed set of problems begins there: what a taxpayer does when the tax is owed but the money to pay it may no longer exist. This is tax debt resolution, not tax advice, and the two are not the same thing.

Disputing liability versus managing it

Taxpayers reach this point through the ordinary taxability rules. Whether a gain is income can turn on intention at acquisition, the scale and frequency of trading, whether the activity is a business or an investment, and the treatment of staking, mining, airdrops, non-fungible tokens, decentralised finance, and token swaps. A provision frequently relevant to individual holders is section CB 4 of the Income Tax Act 2007, under which an amount derived from disposing of property is income if the property was acquired for the purpose of disposal.[3] By the time an adviser is engaged, Inland Revenue has generally formed its view, and often the taxpayer has accepted it.

It is worth separating two exercises that are easily conflated.

Disputing liability means contesting whether the tax is owed at all, which runs through the disputes machinery of the Tax Administration Act 1994 and is bound by statutory time limits. Managing liability means accepting that the tax is owed and dealing with what follows. This article is about the second.

Once an assessment is issued, the tax becomes payable. On a new or increased assessment, Inland Revenue ordinarily allows at least 30 days from the assessment notice before requiring payment. Paying within that period avoids late-payment penalties; use-of-money interest, however, generally runs from the day after the original due date.[4]

The debt does not fall with the market

This is the heart of the problem, and it is the feature most crypto holders never see coming. For taxable holdings, income or loss is calculated on each disposal using its New Zealand dollar value at the time. Once the resulting tax liability is assessed, it is a fixed sum in New Zealand dollars. A portfolio can collapse to a fraction of its former value while the tax bill stays exactly where it was.

Two patterns recur. In the first, gains were realised through token-to-token swaps in a rising market, then the market turned; the remaining coins are now worth little, and the tax on those earlier disposals is still due. In the second, gains were realised and reinvested, but the subsequent fall remained unrealised or the loss arose in a later income year, leaving no liquidity to meet the earlier bill. This is the phenomenon often called phantom gains, and it has drawn very little attention in New Zealand. It is not the product of anything the taxpayer did wrong. It is simply how the legislation works: income or loss is calculated when a disposal occurs, and a later fall in value does not reverse an earlier liability. For someone who already owes, the consequence is blunt. The debt is fixed, and it will not shrink because the portfolio did. What follows is really about one thing: managing a debt that will not manage itself.

The evidence problem

Crypto creates complex tax records. It does not create a different tax system. Once a liability exists, the taxpayer must prove their own numbers, and crypto histories resist proof more than almost any other asset class. A typical history spans several exchanges, some now defunct, and multiple wallets, hot, cold and hardware, built up over years. Export files are patchy or were never taken, accounts have closed, and platforms have shut down with their records. Which wallet holds which assets, whether ownership can be proved, whether a wallet is abandoned, and what happens when keys are lost are all live questions. In practice, incomplete records make it significantly harder for taxpayers to substantiate their position.

Valuation compounds the problem. Every disposal must be converted to New Zealand dollars at its value at the time of the transaction, which raises the question of which exchange's price to use, and when. Prices are volatile, some tokens thinly traded, others delisted with no reliable market at all. For a heavily traded history, valuation is often one of the largest single difficulties in settling the number.

Reconstruction is the work of closing those gaps, through blockchain tracing, exchange reports where they survive, and accountants rebuilding gains from incomplete data. It is neither quick nor cheap, and can consume many hours of specialist time. Nor is it academic, because where acquisition records are missing, later disposals may be calculated with little or no substantiated cost base, inflating the apparent income.

Done properly, reconstruction is often the difference between a defensible figure and an inflated one.

Jurisdiction and offshore activity

Many taxpayers still assume that trading through an offshore exchange somehow removes their New Zealand tax obligations. It does not. Crypto may be borderless. Tax residency is not. A New Zealand tax resident is generally taxed on worldwide income, whatever exchange in Singapore or wallet controlled from overseas sits behind the activity, and from 2027 the Crypto-Asset Reporting Framework will increasingly feed information from overseas reporting crypto-asset service providers in participating jurisdictions back to Inland Revenue. Offshore activity is harder to document, not exempt from tax.

Penalties, interest and collection

Left alone, a tax debt does not stay still. Late-payment penalties accrue after the applicable payment date, while use-of-money interest generally runs from the day after the original due date and continues even while a payment arrangement is in place, so an ignored liability grows steadily larger. Inland Revenue also has real collection tools if matters reach that stage, including deduction notices that require a bank or an employer to pay money directly to the department, and, for serious or persistent debt, bankruptcy or liquidation proceedings. An assertion of hardship does not, by itself, halt collection; it must be raised promptly and supported.

The more useful way to read this is not as a threat but as the reason cooperation works. Inland Revenue would generally far rather agree a workable path with a taxpayer who comes forward than pursue one who goes quiet, and its practice reflects that. Where relief is granted, monthly incremental late-payment penalties do not apply while the taxpayer complies with an instalment arrangement, although use-of-money interest continues. If a deduction notice has already been issued, Inland Revenue says it will cancel it once an arrangement is agreed.[5] The powers are the backdrop that makes early, honest engagement sensible.

Financial relief and negotiation

Where a taxpayer accepts the liability but cannot meet it in full, the productive path is engagement. Under sections 177 to 177C of the Tax Administration Act a taxpayer in financial difficulty may seek an instalment arrangement, a write-off of part or all of the debt, or both. For natural persons, serious hardship is assessed through a two-step process: first, whether recovery would cause serious hardship; and secondly, what relief, if any, should be granted. The concept includes an inability to meet minimum living expenses according to normal community standards, serious illness, or an inability to meet the cost of medical treatment. Establishing serious hardship does not make a write-off automatic.[6] The outcome depends on full and credible financial disclosure, weighed against the department's duty to maximise recovery.

The craft is practical and, at its best, cooperative. It lies in realistic repayment proposals grounded in genuine financials, in early and voluntary engagement, and in a demonstrated commitment to future compliance. It also lies in putting the taxpayer's actual difficulty in front of Inland Revenue plainly, including where the legislation itself has produced a harsh result, such as a fixed debt standing against gains that have since evaporated. A cooperative revenue authority can take that into account, and an application that explains it credibly tends to fare better than one that simply asks for time. The object is to resolve the liability, not to re-argue whether it is owed, and the person who is believed is the one who has been straight with the department.

Practical lessons for taxpayers

Two lessons stand out. For anyone already facing an assessment, engagement beats avoidance: make contact early, before the due date, and put a credible, well-documented proposal in front of Inland Revenue, because delay only compounds the cost.

For anyone still trading, the answer is records. Keep them completely, from day one, across every wallet and exchange, because the evidence problem is almost entirely avoidable at the transaction and nearly impossible to repair years later.

The gap between a manageable outcome and a damaging one keeps coming down to the same thing: how early, and how honestly, the taxpayer engages.

^Footnotes

1. ^{Inland Revenue, ‘Crypto investors urged to get tax compliant’ (media release, 20 April 2026), confirming approximately 355,000 New Zealand crypto-asset users, around 57 million transactions and approximately $36 billion in transaction value.}
2. ^{Inland Revenue, ‘Crypto-Asset Reporting Framework overview’; Taxation (Annual Rates for 2024–25, Emergency Response, and Remedial Measures) Act 2025 commentary.}
3. ^{Income Tax Act 2007, sections CB 1, CB 3 and CB 4. Depending on the facts, sections CB 1 and CB 3 may also apply.}
4. ^{Tax Administration Act 1994, s 120D (use of money interest); s 139B (late payment penalty). Inland Revenue, ‘Interest on overpayments and underpayments (UOMI)’ (updated 8 July 2026).}
5. ^{Inland Revenue, SPS 18/04: Options for relief from tax debt (22 August 2018), especially paragraphs 24–29; SPS 21/01: Deduction notices (12 April 2021), paragraph 33.}
6. ^{Tax Administration Act 1994, sections 176–177C; P v Commissioner of Inland Revenue [2015] NZHC 2293.}

Acknowledgement: The author acknowledges Lucas Zhang, a University of Sydney law and science student, for research assistance. Any views expressed, and any errors, remain the author’s own.

*Dave Ananth is a principal at Meridian Partners, specialising in IRD disputes, enforcement, and student loan matters. His background, profile and contact details are here.