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Non-fungible tokens (NFTs) are like cryptoassets as they rely on the same programming technology and exist on distributed ledgers. However, they are not the same as cryptoassets. NFTs are unique and are not interchangeable.

NFTs and GST

A NFT is classified as a service for GST. Selling NFTs is subject to GST so you need to register for GST if you sell more than $60,000 worth of NFTs in a 12-month period. If the NFTs are sold to people outside of New Zealand the sales are zero-rated for GST purposes.

NFTs and income tax

Income tax may be payable on the profit you make from selling NFTs.

You'll have an income tax liability on the sale of NFTs if you are operating a business that involves creating, buying or selling NFTs.

You'll also have an income tax liability on the sale of NFTs you acquired for the purpose of disposal. Unlike cryptoassets, some NFTs can be used and enjoyed by people. Where NFTs are acquired for personal use and enjoyment, there is no tax to pay on the subsequent sale of those NFTs.

However, as NFTs may also be acquired as a speculative investment, you'll need to provide clear and compelling evidence about your purpose for acquiring the NFTs at the time you bought them:

Acquiring cryptoassets to sell or exchange

Example: Sales of NFTs as a part-time activity

Phil is an artist who developed an interest in NFTs. He created an NFT series of different characters and began selling them on OpenSea. Phil was employed full time as an art teacher, but made quite a lot of money from creating and selling NFTs in his spare time. Over a 12-month period, Phil made $70,000 from the sale of his NFTs.

While Phil’s NFT activity is not a business, it amounts to a profit-making scheme. He also undertakes the NFT activity continuously and regularly so will have a taxable activity for GST purposes. This means that Phil will have both income tax and GST obligations for his NFT activity.

Income tax obligations

For income tax purposes, Phil will need to return the income generated from his NFT activity and can deduct the costs incurred in generating the NFTs.

GST obligations

For GST purposes, as Phil’s turnover exceeds $60,000 he needs to register for GST. However, as all of his sales occur on an international platform, Phil does not know if any purchasers are in New Zealand. Phil can zero rate the sale of his NFTs, although he will need to charge GST on any sales made to New Zealand residents. Phil can claim input credits for GST paid on the costs of generating his NFTs.

Last updated: 29 Mar 2022
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