Crypto-salaries legalized in New Zealand

Efma feature

11 September 2019

New Zealand’s tax office has just legalized cryptocurrency as salary. Is this a solution looking for a problem?

New Zealand has a small population but a big reputation as an incubator. Their cryptocurrency laws are the first to see the legalization of payments of a salary in crypto, starting September 1st, 2019. All cryptocurrency tokens used as payment must be tied to fiat and should have a direct standard form of conversion available.

There are some limitations as you would expect. Cryptocurrency can only be used as salary for fixed and regular full-time workers thereby allowing the crypto contract to be tracked and taxed in full: self-employed or freelance contractors are not allowed to be paid in cryptocurrency since the contract is not end-to-end and could be manipulated. Burgeoning gig economy and geek factor, take note.

Like any new product dependent upon existing infrastructure, there are some other hurdles to mass adoption. Common payroll systems do not accommodate crypto and systems development and business case would be required.  Additionally, employment law does not embrace crypto as remuneration for wages and holiday pay.

There are some benefits for workers though. John Nurthen of SIA said: ‘Paying workers in cryptocurrency can be especially useful in blue-collar roles where workers might not have a bank account. It might also be attractive to non-resident workers who would be able to transfer pay to their home country without incurring expensive bank charges’.

‘We have also seen early initiatives where blockchain enables workers to be paid by the second, not by the day, week or month and these could potentially revolutionise payroll in the future.’

So, what does this mean for banks? Well, not much until crypto achieves some sort of critical mass. The first rule of banking is build deposits through salary acquisition. For crypto, gaining a regulatory foothold as a recognised salary is a good first step into mainstream acceptance. But excluding the gig economy freelancer via the new rules definitely won’t assist take-up. Bank accounts are likely to be around for quite some time yet.

Last month, Facebook's blockchain chief David Marcus told a Senate committee that he would take his entire salary in Libra, the company's own digital currency, if and when it's approved by regulators. That might depend on definition of salary among other things. His boss, Facebook’s CEO Mark Zuckerberg famously receives $1 annual salary but $22M in ‘other compensation’. The question still to be resolved by regulators everywhere, whether digital money is really a currency, an asset or a security has enormous taxation and other practical consequences.

All payment systems evolve and blockchain productivity certainly has promise. Time will tell whether crypto can attract sufficient mainstream users or be a digital solution seeking a problem.

Keywords : Blockchain , Regulation , Digital payments/Wallet

Geography : New Zealand