A Week in Review
Are you paying your employees in cryptocurrency?
Well while you may not be doing so, the apparent increasingly common occurrence into today’s cryptocurrency world has resulted in IR issuing an exposure draft (is it wrong to suggest there are perhaps more pressing issues they could be issuing interpretation statements on??) on how remuneration paid in cryptocurrency should be taxed.
PUB00344 follows on from two other recent drafts Public Rulings – Income tax – salary and wages paid in cryptocurrency, and Income tax – bonuses paid in cryptocurrency. The ruling has as its primary focus, scenarios where an employer is issuing cryptocurrency to an employee with conditions attached – namely that the employee will only receive the cryptocurrency if they are still employed by the employer at a specified future date, and the employee cannot sell or otherwise transfer the cryptocurrency until that specified future date. A couple of alternative scenarios are also commented on, however.
In the first instance, IR’s view is that remuneration paid in cryptocurrency does not come within “amounts derived in connection with employment” as set out in section CE 1 of the Income Tax Act 2007. As a consequence, it is the FBT rules which now require consideration.
Under the FBT rules, cryptocurrency is considered to be a “good”, and not falling within any of the specifically defined FBT benefit sections of the Act, it will be an unclassified benefit under section CX 37. The issues remaining to be determined, however, is when exactly will the benefit be provided, and once this has been established, what is the value of the benefit for FBT purposes.
Not unsurprising is the answer to the first question, which deems the benefit to have been provided at the time the employee has actually satisfied the required conditions – until this occurs, it will not be clear whether the employee will receive the cryptocurrency – provision of the cryptocurrency is contingent on future events that may or may not happen.
Once the conditions have been satisfied, however, the value of the benefit will then be determined on the basis of whether or not the employer is also selling the cryptocurrency to arm’s length buyers at the same time the cryptocurrency is being issued to the employee. If yes, then the value for FBT purposes will be the lowest price for which identical cryptocurrency was sold.
Where the employer is not selling the cryptocurrency at the same time as it is issued to the employee, then the Commissioner may be called upon to determine the appropriate value of the fringe benefit. Factors which may come into consideration at this point, are whether there is presently the existence of open market access to the public, is the cryptocurrency about to be first issued to the public, or has the employer ceased selling the cryptocurrency to the public. In the latter two circumstances, the likely value of the fringe benefit will be deemed to be the forthcoming first issue price or the price the cryptocurrency was last sold to the public – as appropriate.
The deadline for comments on PUB00344, is 2nd July 2019.
Income equalisation deposits and refunds SPS finalised
Originally introduced in 1965, the income equalisation scheme (“IES”) provided farmers with a mechanism to be able to iron out their tax rates across income years (due to rises and falls in income), by encouraging them to put aside part of their income in good years to then be able to use these funds for farm development in years where incomes had fallen.
Under the IES, farmers make deposits with the Commissioner, which they then claim a deduction against their income for the year specified in the deposit notice. In an appropriate future income year (when profits are down naturally), an IES refund is requested, the refund amount then deemed to be part of the farmers’ income for the relevant income year.
In more recent years, farmers have seen the introduction of the use of money interest regime, and with many not actually receiving their income until near the end of the income year in a bulk sum (and therefore not actually having had a use of the funds), the IES also provides farmers with an avenue to limit their exposure to the use of money interest cost.
With respect to the IES, IR has now issued SPS 19/03, which sets out the Commissioners standard practice of dealing with both income equalisation deposits for a tax year, and refund applications, that are received outside of the specified period.
SPS 19/03 will, in essence, permit a one-month extension to any deadline, but with the Commissioner still being able to use her discretion in exceptional circumstances.