New Zealand has become the first country legally to back companies that are paying employees in cryptocurrencies, in a move that brings the oft-maligned asset class in line with mainstream forms of payment.
Cryptocurrencies are largely unregulated, digital currencies that enable users to send money online without being tracked.
The ruling by New Zealand’s tax authority allows salaries and wages to be paid in cryptocurrencies such as bitcoin from September 1, as long as the payments are in regular, fixed amounts. The digital currency of choice must also be pegged to at least one regular currency and must be able to be converted directly into a standard form of payment.
The ruling, which was outlined by New Zealand’s Inland Revenue in a bulletin dated August 7, excludes self-employed taxpayers from earning incomes in cryptocurrencies. Companies that choose to pay their employees in crypto will be able to deduct tax under New Zealand’s pay as you earn income tax scheme.
Crypto enthusiasts welcomed the news on social forum Reddit. “Great, one more step towards full crypto integration around the world,” wrote one poster.
Thomas Hulme, a solicitor at London-based law firm, Mackrell Turner Garrett, said the move amounted to “another step towards governments recognising that actually people are wanting to be paid in [crypto].” He added that such demand represented a cultural change: “Some people would rather deal with their wealth in that medium.”
The tax authority’s new ruling highlights the difficulties that regulators have experienced in setting legal frameworks for cryptocurrencies, which exploded into public consciousness a couple of years ago. Wellington’s Inland Revenue defined crypto assets as property, noting that crypto assets are not defined as “money” anywhere, and therefore are not legal tender. However, the authority will tax crypto-salaries as money because “some cryptoassets have many of the characteristics of money; for example, being . . . divisible . . . and hard to counterfeit.”
As assets, cryptocurrencies are notoriously volatile and questions have been raised over their suitability to be held in investment portfolios. Earlier this year social media giant Facebook waded into the debate with an announcement of its own cryptocurrency, Libra. Regulators have since flagged concerns over privacy.
Mr Hulme added that being paid through cryptocurrencies is “a bit crazy” as fluctuations in prices can be large and rapid. Bitcoin, the world’s biggest digital asset by market capitalisation, was trading at $11,350 on Monday, according to Bloomberg data, down from the record highs of $19,000 in 2017. The launch of Facebook’s Libra in June appeared to contribute to a collapse in the price of bitcoin, which dropped nearly $2,000 in a matter of minutes towards the end of the month.