For many South Africa investors, cryptocurrency has become an exciting, and profitable addition to their portfolio.
Gains can deliver significant income if you sell at the right time, which means that there are income tax implications.
The bottom line is: if you have earned an income from cryptocurrency, it is likely to be subject to taxation. So how much will you pay?
In this blog, we’ll dig into everything you need to know about tax and crypto in South Africa.
How the SARS views crypto
While Bitcoin can be used to pay for things in some stores in SA, they aren’t viewed as legal tender by South Africa’s Reserve Bank, but rather as an ‘intangible asset’. This means that they can’t necessarily be used to pay for things ie. you can’t force a retailer to accept them, and they aren’t regarding as currency for tax purposes.. But SARS does recognised that bitcoin and other cryptocurrencies’ values can change and view that this can contribute to an individual’s gross income.
How cryptocurrency is taxed in South Africa
In their most recent statement on crypto, issued in April 2018, SARS reiterated normal income tax rules apply to cryptocurrencies, which means that cryptocurrency gains or losses from trading must be declared as part of your taxable income in your Provisional Tax return (IRP6).
This only applies to realised gains ie. gains that have been made on crypto that has been sold. If you are holding crypto and haven’t sold then an unrealised gain doesn’t need to be declared.
Capital Gains Tax and bitcoin
SARS doesn’t appear to have made a firm determination whether gains made from cryptocurrency are subject to income tax or capital gains tax if crypto holdings are held as an investment rather than as a short term trade:
Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of “gross income” in the Act. Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”.
Alternatively such gains may be regarded as capital in nature, as spelt out in the Eighth Schedule to the Act for taxation under the CGT paradigm.
Determination of whether an accrual or receipt is revenue or capital in nature is tested under existing jurisprudence (of which there is no shortage).
However, generally speaking, for tax purposes, short term trading activity is deemed to be income, while long term investments (usually over three years) are subject to capital gains taxes – the rates of which can be found here.
Bitcoin mining and taxation in South Africa
Income from mining cryptocurrencies is treated as income and subject to normal tax. From SARS guidelines:
A cryptocurrency can be acquired through so called “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms. By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger.
This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realised through either a normal cash transaction or a barter transaction
What happends if you don’t declare your crypto gains?
The onus is on you as a taxpayer to declare your cryptocurrency-related taxable income in the tax year in which it is received or accrued.
If you don’t, you could be subject to interest and penalties, as with any other unreported income
If you’re unsure about any transactions involving cryptocurrencies, you can seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).
Changes to cryptocurrency taxation in South Africa
It’s likely that stricter laws relating to crypto are coming to South Africa.
As cryptocurrencies allows anonymous transactions to be conducted over the internet, including across borders, SARS knows that it could be used to avoid tax in a number of different ways
There are reports that SARS is currently looking into how crypto traders can be identified, to ensure that taxes are paid. However, this is obviously tricky due to the anonymous nature of cryptocurrencies.
We’ll continue to monitor this situation for any new announcements and will update this blog posts when SARS or SARB change their position or policies.