How Can I Claim My Crypto Loss? Ask Susan

Susan
Edmunds, Money Correspondent

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If someone was to make a loss
trading crypto, how does one write those losses off against
other income?

Inland Revenue has been
cracking down on crypto-trader income recently and warning
that people who have been making money probably need to pay
tax on it.

You’re right that you can also claim losses
you make on your crypto investments against your taxable
income.

If you are currently being automatically
assessed by Inland Revenue – that is, you’re not regularly
filing tax returns – you’ll need to request a tax return to
do this.

Deloitte crypto expert Ian Fay says you need
to include the loss in return for the relevant tax
year.

“A loss realised through a disposal of crypto
for less than cost during the year to 31 March 2026 would be
included in their 2026 income tax return, due to be filed by
7 July 2026, or 31 March 2027, if they have a tax
agent.

“Where there have been multiple purchases and
sales, there are specific rules that apply to determine the
cost of the crypto that has been sold, generally either on a
‘first in, first out’ basis or ‘weighted average
cost’.

“Where crypto holdings have gone down in value,
but are still held and have not been sold, no loss can be
claimed.”

As for how you do it practically, Inland
Revenue offers
some advice.

It says, when you complete your tax
return at the end of the year, if your crypto income doesn’t
fit into business or self-employed income, you need to
report the income or loss in the “other income”
box.

“To claim a loss, you need to show that if you’d
made a profit it would have been
taxable.”

With regards to KiwiSaver hardship
withdrawals, I would like to know how many of those approved
came from working Kiwis, how many were on some sort of
benefit and how many were elderly. How much can someone on a
benefit claim under hardship, before their benefit is
penalised?

People aged more than 65 and
withdrawing money from KiwiSaver won’t be captured by the
hardship withdrawal data, because they have free access to
their accounts.

The hardship withdrawal data doesn’t
break out whether people are working or on a
benefit.

The Ministry of Social Development told me
that usually a withdrawal wouldn’t be counted as income and
so wouldn’t affect the level of benefit that people can get,
but if you’re making regular withdrawals over a period of
time, it could be included in the calculations. It’s a good
idea to check with MSD, if you’re in this
position.

Withdrawn KiwiSaver money could also
potentially count towards the asset threshold for the
accommodation supplement.

Someone also asked me
whether KiwiSaver withdrawals were counted as income for tax
purposes – the answer to that one was no.

Why
is the PIE tax based on your last two years’ pay, especially
when one only has pension income? I would have thought the
PIE tax applicable would be based on the tax year the money
was earned, not based on income earned two years
earlier.

When you are investing in a
portfolio investment entity (PIE), such as most KiwiSaver
funds, you pay tax at a prescribed investor rate (PIR),
which is set according to your income.

As you say,
this is based on the income earned over the past two
years.

Deloitte tax expert Robyn Walker said it was
hard to find any background policy papers that specifically
stated why, but the logical answer was
practicality.

“Anyone investing into a multi-rate PIE
is required to provide the investment manager with a
Prescribed Investor Rate (PIR). The PIR is intended to allow
the investment income to be taxed at a rate that is
approximate to the marginal tax rate of the investor (with
the exception that the maximum PIR is 28 percent, which is
of benefit to anyone on the 30 percent, 33 percent or 39
percent marginal tax rates).

“If a tax rate were to be
based on the income that you earn in that same income year,
this is likely to result in errors and unders/overs (similar
to what happens with things like Working For Families
payments). Instead, the PIE regime looks to the level of
income in prior years in order to have a guaranteed tax rate
that can be used by the PIE to undertake their tax
calculations for each investor.

“The tax rules allow
the investor to look at the income earned in the previous
two years (rather than the most recent year), because
practically, you might not yet know what your income was in
the most recent income year. For example, if you were
electing into a new investment on 2 April 2026, you might
not have prepared your tax return or have all the
information to hand to determine what your income was for
the period 1 April 2025 – 31 March 2026.

“In that
case, you would use the data from the tax return for the
period 1 April 2024 – 31 March 2025.”

She said it also
allowed for a level of concession, if your income
fluctuated.

“When electing a PIR, an investor looks at
whether ‘in either of the two income years before the
relevant tax year’ income has been earned below certain
thresholds.

“If someone is just receiving income from
the pension, practically their PIR may be unlikely to change
from year to year. Investment managers are still required to
remind investors of the need to confirm they are using the
correct
PIR.”

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