Some cryptocurrency skeptics say if you can’t use digital assets to pay your taxes, then those assets aren’t actually money. Through that lens, cryptocurrencies have just become money in the island country of New Zealand.
This month, the nation’s Inland Revenue Department (IRD) published two binding rulings related to cryptocurrencies. Notably, the first ruling outlined the legality of paying employees’ salaries in cryptocurrency if a series of specific conditions were met, e.g. if a crypto is being used like a currency in an employment contract.
As the IRD explained:
“Where an employee has agreed to receive part of their regular remuneration in the form of crypto-assets, most [legal] requirements would be met. The payments would be fixed, regular amounts received in return for work undertaken. Crypto-assets can also have many of the characteristics of money; for example, the types of crypto-assets covered by this Ruling are readily transferable mediums of exchange, divisible, fungible, durable and hard to counterfeit.”
First greenlighted by the IRD’s Director of Public Rulings Susan Price earlier this summer, this binding ruling will become the law of the land on September 1st, 2019, and will be live for an initial three-year period after that point.
The second binding ruling dealt with bonuses, with the IRD saying “crypto-assets paid to an employee in connection with their employment as an incentive” are bonuses if 1) the given assets can readily be exchanged for fiat, and 2) if they are being used as a currency or if they are pegged to a fiat currency.
The IRD also found that such bonuses fall within “salary or wages” for domestic taxation purposes.
Not So Fast on Bitcoin Salaries in USA
The cryptoeconomy is still fledgling. In that context, global regulators and authorities have really only just begun to grapple with the ecosystem’s implications.
In that sense, the IRD’s latest binding rulings on cryptocurrencies are modest beacons of local clarity at a time when cryptocurrencies’ statuses are generally unclear in many contexts and outright disallowed in others across the globe.
For example, consider the United States. While there’s no hard data to go off of, it stands to reason that more than a few workers in the U.S. have been paid their salaries in cryptocurrency in recent years. These workers may be at the bleeding edge of the space, but they also seem to be unknowingly breaking the law. Why? Crypto salaries don’t appear to be legal in the U.S. for now.
As lawyer Stephen Palley recently noted on Twitter and through industry publication The Block, wages in America are governed by The Fair Labor Standards Act, or FLSA. Palley highlighted that the U.S. Department of Labor enforces that legislation by requiring “prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par.”
In other words, the U.S. dollar is supposed to be the currency of U.S. wages. And when asked whether cryptocurrencies could qualify as “negotiable instruments payable at par,” Palley said the relevant law didn’t back up that interpretation.
The takeaway? You can now legally get paid a bitcoin salary in New Zealand, but the same isn’t true in the U.S. But views on money change, and that means it’s possible cryptocurrencies will be increasingly used in salaries.
Consider arguments made by U.S. Supreme Court Justice Stephen Breyer in a dissenting Supreme Court Opinion last year. In a case involving a stock options dispute, Justice Breyer mentioned bitcoin salaries in arguing how money evolves:
“Moreover, what we view as money has changed over time. Cowrie shells once were such a medium but no longer are […] perhaps one day employees will be paid in Bitcoin or some other type of cryptocurrency.”