An open letter to the IRD: supporting clarity while enabling growth
By: Paul Quickenden, Swyftx NZ Country Manager
Most people don’t think about tax when they think about crypto. They think about price, volatility and maybe regulation. But tax is where things become real because it shapes how people choose to participate and whether they participate at all.
In New Zealand, that conversation is now taking place through IRRUIP18, Inland Revenue’s issues paper on how cryptoassets, particularly those used in decentralised finance, should be taxed.
It’s important to acknowledge the intent here. Providing clarity as this sector grows is necessary and valuable. Opening this up for discussion is equally important. These are complex questions and it’s right they are being worked through carefully and transparently.
At the same time, the direction taken matters and small shifts in framing can have large downstream impacts on behaviour, innovation and participation.
What IRRUIP18 is trying to do
At its core, IRRUIP18 is asking a simple question: when does a crypto transaction become taxable?
To answer that, it leans heavily on the idea of a ‘disposal’. The current framing suggests that when a cryptoasset leaves a user’s wallet and is transferred into a protocol, whether for staking, liquidity provision, wrapping or bridging, that movement may constitute a disposal.
This is where the conversation becomes important.
Do no harm: a principle for emerging sectors
As New Zealand works through this, there is an opportunity to take a steady, principles-based approach that supports clarity without unintentionally constraining growth.
Three key considerations may help guide that approach.
1. Be technology neutral
Cryptoassets should be treated consistently with other asset classes where the underlying economic reality is the same.
We already understand that moving assets within financial systems does not automatically trigger a disposal. Depositing funds, lending shares or placing assets into managed investments does not create a taxable event simply because the asset has moved.
Applying that same neutrality here ensures consistency across the system and avoids creating unintended differences between asset types.
2. Do not conflate mechanics with intent
Most decentralised finance activity is not an exit. It is simply participation. When someone stakes an asset, they are temporarily allocating it to a protocol to earn a return while retaining economic ownership and control. When they provide liquidity, they are contributing to a system in exchange for yield while maintaining an ongoing interest. In both cases, the intent is not disposal. It is the opposite.
Focusing on the mechanics of movement rather than the underlying intent risks treating participation as if it were a sale. A simpler question keeps things grounded: Did the person intend to sell and have they given up economic ownership? If not, it is difficult to see that as a disposal in any meaningful sense.
3. Create settings that allow the sector to grow
At its heart, a nation's tax settings can and do influence behaviour, and if done correctly can be a source of competitive advantage. However, if participation becomes overly complex or uncertain, activity does not stop, it just shifts, elsewhere. So, getting this right is literally a zero-sum game.
Globally, jurisdictions are working through the same questions. While approaches differ, there is a common direction emerging. The UK is moving toward a no gain, no loss approach in cases where economic position has not changed. The US continues to focus on clear disposal events and reporting. Australia is actively reassessing areas where treatment may not reflect economic reality.
These systems are not identical, but they share a principle: tax should reflect what has actually changed, not just how something has moved. Maintaining alignment with that direction supports both clarity and competitiveness.
A grounded path forward
There is a well understood way to approach this and that is to focus on economic substance. If a taxpayer has genuinely transferred the risks and benefits of ownership, then a disposal has occurred. If they have not, then it has not. This keeps the system consistent, aligns with existing principles and avoids introducing complexity where it is not needed.
The bigger picture
This is not about being pro-crypto. It is about maintaining a clear, consistent and practical tax framework. New Zealand has historically taken a principles-based approach. IRRUIP18 is an opportunity to continue in that tradition while engaging constructively with a new and evolving asset class. Done well, this creates clarity. Done carefully, it avoids unintended consequences. And done with a ‘do no harm’ mindset, it allows a growing sector to develop while still meeting the objectives of the tax system.
