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Cryptos and tax 

What is crypto? Are cryptos considered currencies, assets, or trading stock? 
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.
South African Revenue Service (SARS) view on crypto
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%).  
What if we use cryptos as a payment method?
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. 
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SARS is inquiring about cryptos
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: 
  • The purpose for which the taxpayers purchase cryptos; and 
  • A letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period as well as bank statements. 
We have also found that SARS is requesting additional information related specifically to cryptos even when such an asset has not been disclosed on the taxpayer’s return as a source of income or an asset class on their balance sheet.
Supporting documents  
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: 
  • Time and date of purchase or disposal;  
  • Amount paid or received for the purchase or disposal; 
  • Transaction fees; 
  • Number of units acquired or sold; and 
  • Total market value of each crypto held on the date of purchase or disposal as well as tax year end. 
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In conclusion  
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: 
  1. Any money deposited into a trading platform crypto wallet.   
  2. Any money withdrawn from a trading platform crypto wallet. 
  3. All transactions that take place within the trading platform including where:  
  • Cryptos are exchanged for money;
  • Cryptos are exchanged for other cryptos;
  • Cryptos are used to pay for goods or services; or
  • Cryptos are sent to or received from another crypto exchange. 
Taxpayers should consider and comprehend the tax consequences when dealing with cryptos to prevent being caught off guard upon a SARS inquiry.  
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Feel free to contact our Professional Team directly if you require any advice, assistance or more information and we can set up a Zoom, Teams, WhatsApp or traditional call meeting:
(087 802 7811)

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