A cryptocurrency (“crypto”) is a digital currency that is secured by cryptography, which makes it almost impossible to counterfeit. A significant characteristic of cryptos is that they are generally not issued by any central authority, rendering them, in theory, immune to government interference or influence.
On the 18th of April 2018, the South African Revenue Service (SARS) released a statement that said SARS are considering cryptos such as Bitcoin to be “assets of an intangible nature,” as opposed to currency or property.
If a person is trading in cryptos or mining cryptos, this will be considered income in nature because this is a trade, or an active business activity. Conversely, a gain arising from holding cryptos for long term growth will be viewed by SARS to be capital in nature. What this means is that if a taxpayer buys and sells cryptos for short-term profits, these will be taxed at your full marginal rate of up to 45% (which is reached when taxpayer earns more than R 1,656,601 in the 2021/2022 tax year). On the other hand, if a taxpayer holds cryptos as a long-term investment, this will be considered capital in nature. In this case, only 40% (for an individual) or 80% (for a trust or corporate) of the gain will be taxed at the taxpayer’s marginal rate, or trust rate of 45% or corporate tax rate of 28% (soon changing to 27%).
If your intention is to hold cryptos for the long-term, SARS will treat the transaction as capital and therefore the capital gains tax inclusion rates mentioned in the previous paragraph become applicable. Tesla recently announced that they will allow Bitcoin as payment option when purchasing the Tesla Model 3. It is likely that if you are holding the Bitcoin as a store of wealth and decide to swop one asset for another, in other words, crypto for a Tesla Model 3, it is probable that the gain arising from the sale of your crypto to acquire the Tesla will be capital in nature and therefore taxed as a capital gain rather than speculative income.
We have experienced increased interest from SARS during our taxpayer’s verification processes after submitting their income tax returns. Those taxpayers selected for verification are being asked for additional documentation as part of SARS’ preliminary step taken to support possible further audit proceedings. These requests pose standard questions as would be expected on the taxpayers’ returns, but SARS also went a step further to request the following:
We would recommend that the taxpayers maintain full statements,schedules,and screenshots of all their crypto transactions. Most of these platforms do not send certificates to SARS directly and it is therefore the onus of the taxpayer to keep proof of all trades on a crypto platform.
We would recommend that the following information reflect on the statements,schedules,or screenshots:
All crypto transactions will have a tax consequence for a taxpayer, whether an individual, trust or corporate. A taxpayer is required to disclose the following transactions: