DeFi has been one of the murkier corners of NZ crypto tax, but the picture is clearer than it was. On 29 January 2026, Inland Revenue released IRRUIP18, an issues paper setting out the Commissioner's initial views on the income tax consequences of wrapping, bridging, lending, borrowing, and staking cryptoassets. The paper is not yet binding guidance (submissions closed 12 March 2026), but it tells you exactly how the IRD is currently thinking about every major DeFi activity type. This guide walks through that thinking and where the practical pitfalls sit.

The general principle

The IRD's broad approach to crypto activity applies equally to DeFi: if you acquired crypto with the purpose of disposing of it or making a profit, gains on disposal are taxable income. If a protocol pays you for participating, the rewards are typically taxable as income on receipt, valued in NZD on the day. There is no separate capital gains regime, and there is no DeFi-specific carve-out.

For the broader NZ framework, including tax rates, cost basis methods, and IR3 reporting, see our New Zealand Crypto Tax Guide.

Lending protocols (Aave, Compound, and similar)

This is where many existing NZ DeFi guides get the treatment wrong. The instinctive view is that depositing your crypto into a lending protocol is not a disposal because you can withdraw it later. IRRUIP18 sets out the IRD's contrary view: when you deposit a crypto asset into a lending protocol and receive a distinct token in return (aToken on Aave, cToken on Compound, and equivalents elsewhere), you have disposed of the original asset and acquired a new one. Both sides are valued in NZD at the time of the swap, and any gain on the deposited asset is taxable.

The same applies on withdrawal. Burning the aToken or cToken to withdraw the underlying is a second disposal-and-acquisition event.

The narrow exception is where you can demonstrate that beneficial ownership of the original asset never transferred. The IRD points to cases like custodians holding assets on trust, or smart contracts where the assets remain separately identifiable and unpooled. Most major DeFi lending protocols pool deposited assets, so the exception is unlikely to apply in practice.

Interest earned while your position is open is taxable as income at receipt, valued in NZD on the date you have the right to it. For protocols that accrue interest continuously (most do), this is typically the date of claim or rebase rather than the second-by-second accrual.

Liquidity provision (LP positions)

The treatment of LP positions follows the same logic and is also covered in IRRUIP18. The IRD's position is:

• Adding liquidity: The deposit of two tokens into a pool is a disposal of those tokens at their NZD market value, and an acquisition of the LP token at the equivalent value.

• Holding the LP position: Yield rewards (trading fees, incentive tokens) are income at receipt at NZD value. Those rewards then have their own cost base equal to the NZD value at receipt.

• Transferring or burning the LP token: Either is a disposal of the LP token at NZD market value.

• Withdrawing liquidity: The receipt of the underlying tokens on burn is a fresh acquisition.

Net result: an LP position can generate three or four separate taxable events in a single "I added liquidity and then took it out" round trip, before you even count the rewards. Practical implication for record keeping: every entry and exit needs an NZD valuation at the time of the transaction, not just the original deposit and final withdrawal.

Yield farming and staking through DeFi

Yield rewards from any DeFi source (lending interest, LP fees, incentive emissions, yield aggregator rewards, liquid staking rewards) are taxable as income on receipt, valued in NZD on the date the rewards become available to you. The acquisition cost of those reward tokens is then the NZD value at receipt, which becomes your cost base when you later dispose of them.

Liquid staking has a wrinkle worth flagging because the protocol design matters:

• Rebase-style LSTs (e.g. stETH on Lido): Your balance grows over time as rewards rebase into your position. Each rebase is a receipt of additional tokens and is income at the NZD value of each rebase. You will need to track these regularly, since they do not appear as transactions in a typical wallet view.

• Value-accrual LSTs (e.g. rETH on Rocket Pool): Your balance does not change. The value of rETH increases relative to ETH over time. There is no receipt of additional tokens, so there is no income at receipt. Instead, you have an unrealised gain that becomes taxable when you dispose of the rETH.

Conflating these two models leads to over-reporting income for value-accrual LSTs or under-reporting for rebase-style LSTs. IRRUIP18 covers liquid staking specifically.

The initial swap from ETH to either type of LST is a disposal of ETH and an acquisition of the LST, valued in NZD at the time of the swap.

Token swaps via DEXs

Every DEX swap is a disposal of one asset and an acquisition of another, both valued in NZD on the date of the swap. If the disposed asset was acquired with the intent to dispose of it for a profit, the gain is taxable income. Slippage, gas fees, and DEX fees are deductible against the gain in most cases, provided you have records to support them.

Wrapping and bridging

The IRD's position in IRRUIP18 is that wrapping a token (ETH to wETH and similar) and bridging across chains generally constitute a disposal of the original asset and an acquisition of the wrapped or bridged equivalent. Both sides are valued in NZD at the time of the transaction.

There is a narrow exception where wrapping is purely a technical operation and beneficial ownership of the original asset is preserved. In practice this is rare, since most wrapping protocols involve a smart contract holding the original asset and minting a separate, fungible representation. If you do a high volume of wraps or bridges, the cumulative cost base impact is worth modelling, and discussing with a tax adviser, before you reach the end of the tax year.

Airdrops and protocol incentives

Where you received an airdrop or incentive token in exchange for past use of a protocol, or as a reward for current participation, the IRD treats it as income on receipt if you provided a service or are running a crypto-related profit-making scheme. Pure passive airdrops where you did nothing to receive them may not be taxable on receipt, but become taxable on disposal. The line between passive and active airdrops is narrow, so document your eligibility criteria carefully. The pillar guide covers airdrop treatment in more detail under the individual income section.

Hacks, exploits, and rug pulls

DeFi protocols are routinely exploited, and the question of whether you can claim a deduction when funds are lost to a smart contract exploit, a bridge hack, or a rug pull comes up often. The IRD's position on stolen crypto applies here, with the same evidence requirements: you can claim only if the assets would have been taxable on disposal, the deductible amount is the original acquisition cost, and the deduction is claimed in the year of loss. For the full evidence checklist and recovery rules, see our guide to claiming lost or stolen crypto in NZ.

Where DeFi income goes on the IR3

There is no dedicated DeFi field on the IR3. Lending interest, LP fees, staking rewards, and yield farming income generally go in "Other income" on the IR3, valued in NZD at receipt. Disposals (the deposit, withdrawal, and any swaps along the way) are netted into the trading gain or loss reported in the same section. For the full step-by-step on entering crypto figures on the IR3, see our guide to filing crypto on the IR3.

Record-keeping for DeFi

Your records need to capture, for every transaction:

• Date and time

• Type of transaction (deposit, withdrawal, swap, claim, bridge, wrap)

• Tokens in and tokens out, including amounts

• NZD value of each side at the time of the transaction

• Wallet addresses involved

• Transaction hash

• Gas fees paid

The IRD requires you to keep these records for 7 years. Manual tracking across DeFi quickly becomes unworkable, especially across multiple chains.

CARF and DeFi

One question that comes up: does the Crypto-Asset Reporting Framework, effective from 1 April 2026, capture DeFi activity? The short answer is partially. CARF reporting obligations fall on Reporting Crypto-Asset Service Providers (centralised exchanges, custodians, certain wallet operators), so pure on-chain DeFi activity that never touches an RCASP is not directly captured. However, the on-ramps and off-ramps almost always are. Bridging stablecoins out of a CEX to a DeFi protocol shows up on the CEX side; cashing out yield back to NZD shows up too. The IRD has enough breadcrumbs to ask questions even where the protocol activity itself isn't reported. For the full picture of CARF, see our CARF guide for NZ crypto investors.

How Summ handles NZ DeFi tax

Summ ingests transactions directly from on-chain wallet addresses across the major EVM chains and Solana, automatically categorises each transaction, values it in NZD using historical price data, and applies the IRRUIP18-aligned treatment for lending, LP, wrapping, bridging, and staking. You can override individual transactions where you have a defensible alternative position.

The output is a single reconciled NZ tax report covering centralised exchanges, wallets, and DeFi activity, with the figures broken down into IR3 categories. Get started with Summ to handle DeFi tax without the headache.