Most new crypto clients come to us with a simple goal. To get tax compliant. When taxes are left for later, the result is often stress, risk reviews, audits, and unnecessary costs. The good news is that there is a clear path to compliance and regaining control.
First principles for crypto
Tax is triggered at each disposal of a crypto token. That includes selling for dollars and swapping one token for another, and using tokens to buy goods or services. Moving tokens between wallets you own is not a disposal.
What IRD can charge
Late payment penalties
For income tax, IRD can add a 1% penalty the day after the due date and another 4% seven days later. The ongoing monthly 1% stage does not apply to income tax. IRD may allow a one-off grace period for a first slip in two years.
Use of money interest
If tax is underpaid, IRD charges interest calculated daily. Rates change over time and have been high in recent years. Key rate changes since 2022 include 7.00% from 8 May 2020, 7.28% from 10 May 2022, 7.96% from 30 August 2022, 9.21% from 17 January 2023, 10.39% from 9 May 2023, 10.91% from 29 August 2023, 10.88% from 16 January 2025, and 9.89% from 8 May 2025.
Shortfall penalties
These apply when a return is wrong or a required return was not filed, and they scale with behaviour:
Not taking reasonable care 20%
Unacceptable tax position 20%
Gross carelessness 40%
Abusive tax position 100%
Evasion or similar act 150%
IRD can also add 25% for obstruction. Criminal prosecution is possible in serious evasion cases.
Voluntary disclosure reductions
Coming forward early is powerful.
A full disclosure before IRD notifies an audit can reduce penalties by up to 100% for reasonable care and an unacceptable tax position, and by 75% for other categories, including gross carelessness, an abusive tax position, and evasion.
If disclosure occurs after notification but before the audit begins, the reduction is generally 40%.
A simple example of waiting
Assume an underpaid income tax amount from the year ended 31 March 2021, due 7 April 2022, left unpaid until 15 September 2025.
Interest is charged daily at the rates in force.
Core tax $50,000 dollars
Late payment penalties
1% the day after due date: $500 dollars
4% seven days later on tax plus the first penalty: $2,020 dollars
Total late payment penalties: $2,520 dollars
Interest on underpaid tax
Calculated daily and added up across each rate period. Example totals:
8 April 2022 to 9 May 2022 at 7.00%: $306.85
10 May 2022 to 29 August 2022 at 7.28%: $1,116.93
30 August 2022 to 16 January 2023 at 7.96%: $1,526.58
17 January 2023 to 8 May 2023 at 9.21%: $1,161.37
9 May 2023 to 28 August 2023 at 10.39%: $1,446.58
29 August 2023 to 15 January 2025 at 10.91%: $7,630.72
16 January 2025 to 7 May 2025 at 10.88%: $1,521.82
8 May 2025 to 15 September 2025 at 9.89%: $1,774.78
Estimated interest to 15 September 2025: $16,963.79
Illustrative total without shortfall penalties
Core tax $50,000
Late payment penalties $2,520
Interest $16,963.79
Indicative total payable: $69,483.79
Add shortfall penalties if IRD considers the behaviour met one of the categories above. These can be reduced substantially by a full voluntary disclosure.
Why clients feel the weight of IRD
Once you are on IRD’s radar, every delay increases attention and cost. Risk reviews and audits involve repeat information requests, reconciliations, and source data checks. The emotional toll is real. Our goal is to remove that pressure quickly by front-footing the disclosure, proving the facts, and setting an agreed plan to full compliance.
What do we do with our clients?
Our SORTED Method
We review wallets, exchanges, DeFi, and NFTs. We reconcile disposals and staking or other rewards, and we document the tax positions clearly.Voluntary disclosure
We prepare and lodge full disclosures that meet IRD’s standard, which can materially reduce or remove shortfall penalties depending on timing and behaviour.Reduce interest where possible
Where appropriate we consider tax pooling to reduce IRD interest on underpaid provisional tax and to remove late payment penalties for that tax type.Get ahead of issues
If a large refund or liability is outside IRD’s expected profile, we supply evidence that resolves integrity reviews early, before an audit becomes likely.Client first
We act for you. We keep open, professional contact with IRD, but our job is to protect your position and to close matters without drama.
The cost of waiting
Waiting until you cash out to dollars is the number one mistake. Tax is due when you dispose of a cryptoasset, including token to token swaps and using crypto to pay for things. Leaving it means more interest, more penalties, and a greater risk of an audit.
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Contact Us
Contact Tim Doyle for a call or meeting to discuss any cryptocurrency tax or accounting questions. Our office is in Cambridge, Waikato, or we can arrange a video conference call.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
