Crypto-focus: IRD Puts DeFi Cryptoasset Transactions Under the Tax Lens

On 29 January 2026, Inland Revenue released IRRUIP18 (Income tax – wrapping, bridging, lending, borrowing and staking cryptoassets), a discussion document outlining the Commissioner’s initial views on the income tax consequences of common decentralised finance (DeFi) transactions.

In simple terms: For those who are not experts on cryptocurrencies and trading (like us!), here’s a simple way of thinking about the issues being considered in the discussion document before we go into the details:

• The starting point is that cryptoassets are personal property (not money) and this is settled law (at the moment) in New Zealand.
• The various DeFi transactions considered in the discussion document results (in Inland Revenue’s initial view) in disposals and acquisitions of crypto assets. 
• Since the cryptoassets are personal property, the tax rules that determine whether the disposal of personal property is taxable applies to the various DeFi transactions considered in the discussion document.

Why This Matters

DeFi is now becoming (if not already) mainstream for crypto investors and businesses. The discussion document signals that many DeFi steps can trigger taxable disposals of cryptoassets - sometimes several in quick succession - and that “rewards” are generally taxable when received. This is relevant for investors, protocols, exchanges, treasury teams and any organisation with on-chain exposure.

What’s in scope: IRRUIP18 focuses on arrangements commonly described as wrapping and bridging, lending, borrowing and staking. The discussion document applies general principles to general transaction types and does not provide protocol specific guidance.

Going into the Details 

Inland Revenue’s view on the tax treatment of common DeFi steps:

1. Wrapping & bridging: Wrapping or bridging involves locking a cryptoasset on one blockchain (e.g., Bitcoin) and minting a corresponding representative token on another blockchain (e.g., Wrapped Bitcoin on Ethereum). Inland Revenue considers this process involves: 
   > disposal of the original cryptoasset when it is wrapped or bridged; 
   > acquisition of the wrapped/ bridged token; and 
   > another acquisition of a new cryptoasset when the wrapped token is burned and the original cryptoasset is unlocked.
2. Lending to liquidity pools: Lending involves transferring cryptoassets into a liquidity pool from which other users can acquire/borrow cryptoassets from. Lenders would typically earn rewards which can be by way of additional cryptoassets. Inland Revenue considers this process involves:
   > a disposal of the original cryptoasset when it is transferred to the liquidity pool; 
   > an acquisition of a liquidity token;
   > a disposal of the liquidity token if it is transferred to another person or burned; 
   > an acquisition of a cryptoasset when exiting the pool; and
   > and an acquisition of cryptoassets as rewards.
3. Borrowing (with collateral): This is the other side of lending, but with the addition of a borrower (in most cases) needing to provide collateral in the form of cryptoassets to borrow from a liquidity pool. In a borrowing transaction, Inland Revenue views the deposit of cryptoassets (as collateral) into a liquidity pools constitute a disposal.
4. Delegated staking: This involves giving validators the right to use one’s cryptoassets as collateral in their validation process in exchange for earning rewards. Whether a disposal occurs in a staking transaction depends on where the collateral is transferred, e.g. if it is transferred to a staking pool combined with other cryptoassets, there will be a disposal.

For those who read the discussion document in full, you may have found the comments around ‘what is the tax treatment’ to be a bit repetitive. In brief, whether the disposals under each of the DeFi transactions outlined above are taxable will depend on each individual’s circumstances. Not overly helpful, but some common themes are:

• There appears to be a presumption / strong suggestion that cryptoassets acquired for the purposes on entering into DeFi transactions are acquired with a dominant purpose or disposal and hence would generally be taxable.
• Taxpayers in the business of dealing in cryptoassets would be taxable on the disposals under each of the DeFi transactions considered.
• The key is to understand whether a disposal has occurred, which can be complex. 

Practical Implications and Actions 

• Treat every DeFi step as a legal transaction. Record what you sent, where it went (pool, bridge, smart contract), what you received, and whether you retained private key control—a disposal typically occurs when assets leave your wallet and you no longer hold the private key. 
• Document the purpose at acquisition (e.g., bridging, providing liquidity or staking); Inland Revenue may test stated purpose against objective factors such as the nature of the asset, time held and the pattern of transactions. 
• Measure income at the right time. Market value on receipt for rewards and at disposal for transfers; where tokens are illiquid or non-tradeable, use the value of the assets given up as a reasonable cost basis and keep valuation evidence. 
• Avoid double taxation on rewards, treat the value recognised at receipt as the cost when those rewards are later disposed of.
• Strengthen record keeping: retain transaction hashes, timestamps, wallet addresses, protocol terms and valuation screenshots; calculators can assist, but review outputs carefully for complex flows such as pooling, liquid staking, bridging and collateralised borrowing.

Have Your Say

For interested and/or impacted parties, you have the opportunity to make submissions to Inland Revenue on the discussion document. Deadline for submissions is by 12 March 2026. 

Some suggestions if you are looking to make a submission:

• The initial views expressed in the discussion document hinges on whether Inland Revenue’s characterisation of what occurs in the various DeFi transactions is accurate. We would encourage the experts in this area to provide comments on this.
• Without having sufficient research (yet), Inland Revenue’s initial view that “a person acquiring cryptoassets for use in DeFi transaction will generally have acquired cryptoassets for the purpose of disposal…” appears overly simplistic. We would encourage submitters to test this in your submissions.

Final Thoughts

Inland Revenue has had a particular focus on cryptoasset transactions in recent times and for good reasons. Anecdotally, we have heard stories of individuals becoming overnight millionaires through investing in cryptoassets, only to get a nasty surprise when they are investigated by Inland Revenue and find out they have a massive tax bill to pay. So be aware and make sure you understand your tax obligations if you are thinking of or are already engaged in cryptoasset transactions.

Taxpayers with exposure to cryptoassets or DeFi arrangements should consider reviewing their positions and obtaining advice on the potential New Zealand tax implications – Andersen are here to help.

Authors - Anubhav Jain & John Javier