Looking into New Zealand’s recent substantial movement in the crypto sphere
Adoption of crypto payment
With a surge in the number of companies accepting Bitcoin as payment, including tech giant Microsoft, Starbucks, and Expedia, and over 25,000 French retail sales points to support bitcoin payment by 2020, growing crypto adoption across the globe helps boost cryptocurrencies into the mainstream.
As crypto payment is gaining its ground in various countries and more crypto adoptions are expected to infiltrate our daily life, New Zealand comes in to be one of the recent examples that demonstrates its efforts in working towards a more full and complete crypto adoption.
New Zealand’s recent substantial movement in the crypto sphere
In response to the increasing use of crypto assets and rising demand for getting paid in cryptocurrency, New Zealand’s Inland Revenue Department (IRD) published a new ruling that legalizes salary and wage payments in cryptocurrency, clarifying how taxation will be conducted. The ruling is effective for the next three years starting from September 1, 2019.
The substantial ruling comes with more details compared to other similar guidance put forth by countries such as the US and UK. First, this ruling is only applicable to official full-time employees. Second, payments must be a fixed and regular amount, the value of the crypto asset must be convertible to at least one fiat currency and should not have a “lock-up period”. Employees will follow ‘pay as you earn income’ tax scheme, just like the tax legislation of regular fiat salaries.
Amid rounds of excitement generated among crypto enthusiasts, some doubted the objective behind the ruling is just to collect more tax. Because the government still maintains cryptocurrency status as an asset only — meaning crypto is still not a currency in their eyes.
Nonetheless, New Zealand has made a vital step in leading the economy to a digital working paradigm and setting an example for other countries. What should we consider when we have a choice?
Is receiving salary in crypto a good idea?
Most obviously, when it comes to crypto, the first thing that comes to mind is its volatile nature, which is also one of its biggest hurdles to mass crypto adoption. Erratic fluctuations in the crypto market are no strangers to many. Prices can go up and down drastically within a short period of time. Chances are people will have to take the risk of losing their salary in case of a significant price drop. Further, considering crypto payment has just started to gain its ground in several countries, and most people believe crypto is still in its infancy, it might be inconvenient for people to spend crypto before it finally becomes the widely accepted medium of exchange.
On the bright side, though, this could be great even if you are not a firm believer in the crypto future. First, Bitcoin is commonly regarded as “digital gold”. Statistics have shown that its prices have surged up 123% for the year, according to data from Messari. Even Goldman Sachs announced Bitcoin as 2019’s best-performing asset and many predictions have pointed to a further rise in bitcoin’s value in the future. Think about it, especially at times like this, when global economic recession still looms, receiving wages in crypto may be a better option in a way that it allows hodlers to save more money than keeping fiat money.
On the other hand, for people in political and economic unstable countries, crypto salary would facilitate them to effectively manage their financial accounts for they can avoid inflation risks and enjoy less cross border payment expenses.
It would be interesting to see how New Zealand manage to deal with potential challenges that come along with this new ruling, such as to hold a robust payroll system that can process payments in cryptocurrency. And it is foreseeable that more compliance actions will arise from other countries following New Zealand’s step, which will foster the development of mass crypto adoption and get crypto more integrated into our new digital pedagogy.
Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.