Did you know that tax is payable on crypto asset transactions? SARS has intensified its focus on crypto asset trading recently, significantly improving its capacity to detect crypto activity and non-compliance with advanced analytics, extensive data-sharing arrangements with crypto exchanges, and a dedicated Crypto Asset Unit.
If you have crypto and have not declared it, our expertise and experience will prove invaluable.
“Transactions or speculation in crypto assets are subject to the general principles of South African tax law and taxed accordingly.”
A staggering 5.8 million South Africans hold a crypto asset, with Southern Africa boasting the largest uptake of Bitcoin in the world.
SARS has not failed to notice the phenomenal growth of various digital currencies and crypto assets and is now dedicating substantial resources to ensure that crypto assets and trades are declared on taxpayers’ tax returns.
How are crypto assets taxed?
While crypto assets are not considered legal tender, transactions or speculation in crypto assets are subject to the general principles of South African tax law.
Normal income tax rules apply and affected taxpayers need to declare crypto assets’ income, and gains or losses in the tax year in which it is received or accrued.
Income from crypto assets transactions can be taxed under “gross income” or it can be seen as a capital gain (and subject to CGT). Whether an accrual or receipt is revenue or capital in nature is tested under existing tax law, of which there is plenty.
Taxpayers are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.
Base cost adjustments can also be made according to the CGT rules. Gains or losses in relation to crypto assets can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:
- Crypto assets can be acquired through so called “mining” – the verification of transactions in a computer-generated public ledger through the solving of complex computer algorithms.
- Investors can exchange local currency for a crypto asset (or vice versa) through crypto asset exchanges (which are essentially markets for crypto assets) or through private transactions.
- Goods or services can be exchanged for crypto assets. Such transactions are regarded as barter transactions and the normal barter transaction tax rules apply.
The onus is on taxpayers to declare all income and gains related to crypto assets.
Stricter enforcement
SARS has intensified its focus on crypto asset trading recently, significantly improving its capacity to detect crypto activity and non-compliance. They have done this by:
- Making greater use of advanced analytics, artificial intelligence, machine learning and algorithms
- Entering into data-sharing arrangements with crypto exchanges
- Establishing a dedicated Crypto Asset Unit
Since last year, SARS has been sending Audit and Request for Relevant Material Notices to taxpayers who have traded, invested or even used crypto assets for purchases.
This is possible because SARS now has access to trading data directly from crypto exchanges. This includes information on taxpayers who have traded in crypto assets but may not have disclosed these activities on their tax returns. In addition, through multilateral agreements, SARS is exchanging information with other tax authorities globally, in line with global tax enforcement trends.
What’s more, the establishment of SARS’ specialised Crypto Asset Unit is a clear indication that crypto asset taxation has become a priority.
What must I do?
Taxpayers engaged in crypto asset transactions should ensure their tax affairs in this respect are fully compliant. Failure to comply could result in audits and investigations; interest and penalties at percentages as high as 200%, as well as further legal repercussions.
The SARS Voluntary Disclosure Programme (VDP) provides an opportunity for taxpayers who have not declared their crypto holdings to achieve compliance and to avoid potential penalties and interest. However, the VDP has strict conditions, one of which is that the taxpayer must voluntarily approach SARS first, before SARS initiates further action. Once SARS has identified a taxpayer for audit, they can’t apply for the VDP.
How we protect your interests
Relying on accounting and tax expertise is essential for correctly assessing any historical crypto tax liability and possibly making voluntary disclosures, correctly declaring current crypto asset transactions, and ensuring compliance requirements are met proactively.
You can count on our experience and expertise in managing your crypto tax affairs!
