Crypto Custody and Exchanges NZ
Two things about cryptoassets in New Zealand are widely misunderstood, and both cost people money. One is tax, where the common belief is comfortably wrong. The other is custody, where the risk is not the one people prepare for.
The three things to remember
There is no capital gains tax here, and most crypto disposals are still taxable. An exchange is not a bank and carries no deposit protection. And not your keys, not your coins is a description of legal reality, not a slogan.
The tax position
New Zealand has no general capital gains tax, and a great many people conclude from that their crypto gains are untaxed. Inland Revenue's position is that cryptoassets are property, and that amounts derived from disposing of property acquired for the purpose of disposal are taxable income.
That test catches most crypto holdings, because cryptoassets do not produce income and are almost always bought in the expectation of selling them later at a higher price. The absence of a capital gains tax is not the point. The ordinary income rules reach it without one.
| Event | Generally a disposal? |
|---|---|
| Selling crypto for New Zealand dollars | Yes |
| Swapping one cryptoasset for another | Yes, this surprises people most |
| Using crypto to buy goods or services | Yes |
| Transferring between your own wallets | No, ownership has not changed |
| Simply holding it and doing nothing | No, until you dispose of it |
Someone who never converted anything back to dollars often assumes nothing taxable happened. Swapping one asset for another is a disposal of the first, and the obligation arises then, in dollars, on that day's value. Someone who swapped actively through a rising market and then held through a falling one can face a tax bill on gains they no longer have. Keep records from the first transaction, not from when you decide to sort it out.
Custody: who actually holds it
This is the question that decides what happens on a bad day, and there are only two real answers.
| Exchange custody | Self custody | |
|---|---|---|
| Who holds the keys | The exchange | You |
| If the business fails | You are a creditor, in a queue | Unaffected, you still hold it |
| If you lose access | Support can usually restore it | It is gone, permanently |
| Main risk | The exchange | You |
Neither is safe. They fail differently. Exchange custody moves the risk onto an institution that can be hacked, mismanaged or fail, and history in this sector is not reassuring on any of the three. Self custody removes that entirely and hands you a risk you may be less equipped for, because a lost key is final in a way nothing in ordinary finance is.
The Depositor Compensation Scheme covers deposits at licensed deposit takers up to $100,000. It covers banks, credit unions, building societies and licensed finance companies. It does not cover investments, and it does not cover cryptoassets held on an exchange. Money in an exchange account is not protected the way money in a bank account is, and the fact that the interface looks similar is not a legal fact about it.
What registration does and does not mean
Exchanges operating here must meet anti-money laundering obligations and register accordingly, which is why they ask for identification. That registration is about preventing money laundering. It is not a prudential licence, it is not a guarantee of solvency, and it does not mean anyone is supervising whether your assets are actually there.
The practical risks, in order of how often they occur
Two factor authentication by text is defeated by a SIM swap, where an attacker persuades a mobile provider to move your number to their device. It is not a hypothetical attack and it targets exactly this. An authenticator app or a hardware key is not vulnerable to it. If an exchange holds anything you would mind losing, this is the single highest value fifteen minutes available to you.
Records, because the tax obligation is yours
Exchanges come and go, and when one goes it takes its transaction history with it. Inland Revenue's expectations do not soften because your records were on a platform that no longer exists. Export the history periodically and keep it somewhere you control: dates, amounts, the New Zealand dollar value at the time, fees, and what each transaction was.
Sensible positions
On yield offers
Products offering a return on cryptoassets deserve particular scepticism, because the return has to come from somewhere and that somewhere is usually lending your assets to someone else. When such arrangements have failed, holders have generally found they were unsecured creditors of a business rather than owners of their assets. A high advertised yield on a volatile asset is a description of risk, not of generosity.
What this guide does not cover
Tax treatment depends on your circumstances and your intention at acquisition, and mining, staking, airdrops and business activity each have their own treatment not covered here. This guide takes no view on whether any cryptoasset is a good investment. It is general information rather than tax or financial advice, and Inland Revenue publishes specific guidance on cryptoassets that should be read alongside advice from an accountant.
Related guides and tools
- Investment scams guide, for the schemes that use this asset class as cover.
- Credit unions guide, for what deposit protection does and does not reach.
- Identity theft protection guide, for the account takeover route into an exchange.
- Gold and commodities guide, for the other asset that produces no income.
Test Your Knowledge
Ten questions on custody, exchange risk and New Zealand tax.
Sources: Inland Revenue guidance treating cryptoassets as property, under which amounts derived from disposing of cryptoassets acquired for the purpose of disposal are taxable income; the Deposit Takers Act 2023 Depositor Compensation Scheme, which covers deposits at licensed deposit takers and not investments; and the anti-money laundering registration requirements applying to exchanges. Tax treatment depends on your own circumstances and intention, so confirm your position with Inland Revenue or an accountant.
Related tools and guides
- Platform switching cost calculator: the full cost of moving holdings between platforms.
- Time horizon risk calculator: the odds of a negative return over your holding period.