We’ve recently been asked by many clients about cashing out from crypto. So, we sat down with a local bank manager (from one of the major banks), and specifically asked about their internal processes and requirements for crypto deposits.
Spoiler alert: there aren’t any…
Anti-Money Laundering Act (AML)
Banks have obligations under the Anti-Money Laundering and Countering Financing Terrorism Act 2009
(AML), as well as meeting statutory obligations set by the Reverse Bank of NZ Act 1989 and Common Reporting Standard
One of the AML key purposes is to detect and deter money laundering. This creates conflict with crypto’s anonymous nature, and stigma around being used for illegal transactions; rather than its more practical uses such as a decentralised currency, investment opportunity etc. For a bank, this creates risk and a need for enhanced due diligence.
The banks need evidence and verification to prove where your funds/wealth have come from. Previously this has been more straight forward to verify, for example:
So where does crypto fit in?
- Wages - payslips and/or an employment contract
- Sale of property - legal documents confirming transfer of property title
- Inheritance – deed of distribution from a will
- Business income – financial statements prepared by a Chartered Accountant
- Investments – broker/custodian statements, dividend notices from a company in which the client holds the shares
- Other - to be approved on an exception
For those either trading, mining and involved in a crypto business activity (ie: exchanges, brokering, fund management), crypto fits into the description of ‘business income’.
For business income (regardless of the type of business – crypto/non-crypto) a set of financial statements (and IR10) is required to be filed with the IRD as part of a tax return.
A tax return filed with the IRD, showing taxable income, in conjunction with financial statements, adds another layer of authenticity showing your creation of wealth and source of funds to the bank.
If financial statements are prepared by a Chartered Accountant, it will add further creditability and confidence in meeting the banks internal requirements.
For those ‘buy & hold’ and non-traders, crypto would fit into the banking requirement of personal property/other. IRD default position is that any gains will be taxable income
and therefore financial statements prepared by a Chartered Accountant may still assist in both meeting banking and IRD obligations.
You need suitable verifiable evidence to prove how you have made your money in crypto.
- Keep records all your transactions and trades (you can normally export transactions on most exchanges) and prepare financial statements. If you’re trading or mining, you’re in business - keep records of all transactions. A non- crypto business would keep track of every sales invoice and each purchase made.
- Provide verified bank statements showing payments to exchanges for the original purchase of crypto. This supports the initial deposit and creation of wealth (banks are aware of the increase in price of crypto, but need to verify and be presented with evidence).
- Don’t delete or make your transactions private (for applicable privacy coins)
- Avoid doing crypto transactions in cash
- Save/screenshot media releases and official update/emails that support any unusual transactions (for example: exchange hacks and coin lost, ICOs).
- Make sure the bank has an updated copy of your ID (passport/drivers licence), as well as address verification documents (utility bill, rates notice etc) on their file. They are required to have you verified as part of their AML risk review process.
How AgBiz can help:
- Talk with your bank manager before large transactions. Everyone will have different transaction limits and risk profiles. Have the information ready to be provided before its needed.
- We can prepare your financial statements and tax returns. This will reconcile with any payments to your bank account, market values and assist in meeting banks requirements for large deposits.
- Meet IRD requirements, calculate tax payments requirements, advise of due date, plan a suitable strategy for provisional tax (if applicable)
- Discussion with your bank and provide verification documents requested
- Provide tax and ownership advice for cryptocurrency
Feel free to give Tim Doyle a call or email; 020 4122 4440 or email@example.com
for a free no obligation chat should you have any questions or would like some assistance with your cryptocurrency tax or accounting.
My thoughts on IRDs view
Details of large transactions do not get passed automatically to IRD. IRD would have to specifically request information from your Bank (or an exchange) for the details to be released (unless the bank had reason to report a suspicious transaction under the AML).
For most, the crypto ‘boom’ (so far) was from 2015 to Nov 2017. This is part of the tax year ending 31 March 2018. Individuals with a tax agent will have until 31 March 2019 to file their 2018 tax return.
In my opinion, IRD will wait until they have a body of information relative to crypto gains and losses. This won’t be available until late 2019. Any IRD investigative action would likely depend on what happens within the Crypto market (potentially large untaxed gains or people claiming tax losses). We have been expecting IRD to issue general guidelines around the GST treatment for crypto, this may or may not include income tax treatment of gains or losses.