Inland Revenue has released a document which approves foreign exchange rate sources which can be used in order to convert a foreign currency amount into New Zealand dollars for tax purposes.
The notice also approves the use of mid-month, end-of-month and rolling average currency conversion methods where appropriate. These methods can be used unless specifically excluded under New Zealand’s Income Tax Act 2007 or if the Commissioner states otherwise.
The approval also explains how foreign exchange rates should be used to convert foreign currency amounts and to New Zealand dollars.
GST and currency conversions
New Zealand’s GST legislation requires invoices charging customers to be quoted in New Zealand currency.
The conversion to New Zealand currency must generally be performed at the time of the supply. The supply is the earlier of when money is received from the customer or when the invoice was raised.
That suggests the use of daily rates is required. It would not be acceptable to use a monthly rate in a spreadsheet to convert foreign currency into New Zealand currency.
Under New Zealand legislation crypto assets are considered to be a form of property rather than money.
Therefore, when settlement is made using crypto assets a two-step calculation will be required.
Firstly, you may need to obtain a market value for the crypto asset. In many exchanges the crypto asset is usually expressed in US currency. Secondly, if the market value you obtained is in US or another foreign currency, you will need to convert the value of that currency in New Zealand dollars.
Sometimes an exchange rate is not published on the date you made the supply. A common example is during the weekend.
If that occurs, you should use the daily rate for the preceding day on which a daily rate was quoted.
What foreign exchange rate sources can I use?
You are free to use your own rates and methods when converting Australian currency into New Zealand dollars. You may choose exchange rates for reasons such as established practices, integration with accounting software or to reduce compliance costs.
However you need to ensure that the rate you use is appropriate given the nature of your transaction.
Furthermore, you need to use exchange rates consistently. Clearly, you cannot bounce around various sources and choose the exchange rate that suits you on that particular day!
Inland Revenue has advised that, subject to the above, the following sources have been approved for foreign exchange rate conversion:
- foreign exchange rates published by Inland Revenue at https://www.ird.govt.nz/managing-my-tax/overseas-currency-conversion-to-nz-dollars (you will see that these are not daily rates so may have limited use)
- foreign exchange rates published by the Reserve Bank of New Zealand
- foreign exchange rates published by another country’s central bank. For Australia that would be the Reserve Bank of Australia.
Records you need to keep
You are required to keep sufficient records of the exchange rates you use including the source, type and date of rate.
Remember you also need to keep a record of any calculations you undertake and if you change your foreign exchange rate source you need to include the reasons for that change.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.