While an increasing number of employees in cryptocurrency companies have opted to receive part of their pay in crypto assets such as Bitcoin or Ethereum instead of dollars, most people who have to buy bread and potatoes for their monthly salary still prefer to be paid in currencies that are less volatile.

However, as cryptocurrencies become more liquid and accessible, an increasing number of employees may want to explore alternatives to receive part of their remuneration in crypto instead of fiat money.

Some countries, such as Portugal, have already made payments to employees in cryptocurrencies attractive from a tax perspective.

Paying employees in crypto assets is however less appealing in Australia. An employee who receives cryptocurrency as remuneration instead of Australian dollars will have the crypto treated as a fringe benefit, subject to FBT, per guidance from the ATO (see HERE and HERE).

New Zealand tax guidance

New Zealand was relatively early in issuing tax guidelines for companies that are paying employees in crypto, with the first ruling from the Inland Revenue (IR) published in 2019. The updated public ruling from January 2021 (see HERE) also discusses what constitutes salary and whether a payment in crypto is subject to PAYE.

Similar to the guidance from the ATO, the NZ ruling makes it clear that if a payment of crypto assets is not subject to PAYE it would be a fringe benefit and subject to FBT. There are however some interesting aspects of the ruling which are summarised below as it might influence the future thinking of other Western countries.

The first question asked by the IR was whether regular payments in crypto come within the ordinary meaning of “salary and wages” for tax purposes. While the answer is that it is not certain, on balance, the view was that the concepts of “salary and wages” are wide enough to include regular payments in crypto assets. Consequently, these payments are “salary and wages” for tax purposes.

Interestingly, in the view of the IR not all crypto assets will however be subject to PAYE. To be considered “salary and wages” for tax purposes, the crypto assets need to have the following features:

• They are not subject to a lock-up period
• They can be converted directly into fiat currency (on an exchange); and
  • A significant purpose of the crypto asset is to function like a currency; or
  • The value of the crypto asset is pegged to one or more fiat currencies

That is, for payments in crypto assets that do not meet the above criteria the FBT rules will apply.

While most mainstream cryptocurrencies can be traded on exchanges for fiat currency such as NZD or AUD, the range of functions for crypto assets have evolved and many have a different purpose than functioning as a currency. For example, they can be rights to access a platform or service i.e. a “utility token”. While these crypto assets can also be traded on an exchange they are not intended to operate as a currency, with the result that payments in such tokens will be subject to FBT.

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