Crypto Investors Beware: Why IRD Is Cracking Down on Undeclared Crypto Income

The explosive growth of cryptocurrency has created new opportunities — and new challenges — for investors and regulators alike. In New Zealand, the Inland Revenue Department (IRD) has made it clear: crypto is firmly on their radar. Over the past year, IRD has accelerated its efforts to identify and pursue taxpayers who have not declared income from crypto transactions, and the scale of its enforcement activity is increasing rapidly.

In July last year, IRD signalled that it would be focusing on crypto traders and investors who were failing to meet their tax obligations. Since then, the department has leveraged data analytics, information-sharing agreements, and transaction monitoring to identify non-compliance across the country. According to IRD, more than 227,000 unique crypto users in New Zealand conducted around 7 million transactions valued at $7.8 billion. This level of activity naturally drew IRD’s attention — especially when tax declarations did not align with trading volume.

Crypto accountant Tim Doyle has noted that nearly one-third of his clients have already received letters from IRD requesting information or demanding payment of tax owed. This aligns with IRD’s broader strategy: contacting investors directly, encouraging voluntary disclosure, and following up with audits if necessary. For many taxpayers, these letters come as a surprise, especially because crypto taxation is often misunderstood.

A common misconception is that crypto gains are tax-free because New Zealand does not have a general capital gains tax. However, this does not apply in most crypto scenarios. IRD’s position is that crypto assets are typically acquired with the intent to sell or exchange, making them taxable under existing income tax rules. In simple terms, if you buy crypto with the purpose of making a profit, your gains are taxable — and IRD assumes this intent by default for most investors.

Tax is triggered when crypto is disposed of. This includes selling crypto for NZ dollars, swapping one token for another, or using crypto to buy goods or services. Even if investors never cash out to a bank account, every trade may create a taxable event. Many investors have been caught out after making large gains during peak markets, then seeing their holdings decline in value before they were aware of their tax obligations. In extreme cases, people now owe significant tax bills on gains that no longer exist — creating major financial stress.

IRD’s tougher stance is part of a wider government mandate to strengthen compliance across all tax areas. The focus on crypto is not isolated; it reflects a shift toward using data, technology, and enforcement tools to ensure all taxpayers are meeting their responsibilities. Letters, audits, and requests for information are becoming more common, and the department is prepared to escalate if investors do not become compliant.

For crypto asset holders, the message is clear: review your trading history, understand your tax obligations, and act early. Voluntary disclosure can significantly reduce penalties, but delaying only increases risk. If you are unsure where you stand, seeking professional advice is essential.

As IRD’s crackdown intensifies, proactive compliance is the best way to avoid unexpected tax bills — and the consequences that follow.