• As we enter into a new tax year, many South Africans find themselves perplexed by the same problem: The tax implications of cryptocurrencies. As Bitcoin and Ethereum prices peak in 2021, it becomes clear that the popularity of cryptocurrencies is ever increasing. With more individuals investing and trading in these assets, the South African Revenue Service (SARS) has intensified its focus on the taxation of these types of transactions. So, what does this mean for taxpayers? SARS has not yet drafted any regulations concerning cryptocurrencies nor has it officially defined them. One thing is for certain though, if you are generating an income as a resident, you will be liable for tax on said income.  

    The South African Reserve Bank defines legal tender as follows (2018): Legal tender refers to notes or coins that may be legally offered in payment of an obligation and that a creditor is obliged to accept. From this definition, it is clear that cryptos cannot be deemed legal tender, as no one is obliged to accept it as a form of payment. It is for this reason that they are currently being treated as assets and are therefore taxed in the same way as the income gained from stocks or real estate would be. With this in mind, it is important to note that not all assets are taxed in the same way. When viewed as an asset, cryptocurrencies will primarily be taxed as either capital gains or personal income.

    Capital gains tax forms part of personal income tax and is therefore not a completely separate tax. When it comes to cryptos, making the distinction between capital gains and personal income is often difficult. Without any official framework, the type of tax that applies is largely determined by intent. If the intent is to trade and generate an income actively, it would be considered personal income and taxed on a marginal rate according to this. If the intent was to hold the asset for an extended period of time with the purpose of selling it for a profit once its value had increased, it would be considered a capital gain. It would then be subject to an annual tax exclusion of up to R40 000, after which a marginal rate of tax applies according to the CGT framework. 

    According to SARS: “A capital gain arises when you dispose of an asset”. This means that a tax event is only triggered when an asset, such as a crypto asset, has been sold and an income has been realised. The income will be classified as a short-term or a long-term gain depending on how long the asset was held and what the intention was when acquiring the asset. Each case will be argued on its own merit when trying to differentiate between personal income and capital gains. Blockchain mining is a prime example of crypto assets that are seen as personal income. Although no asset is being sold, it is clear that an income is being actively generated and that the profit does not arise from the increased value of an asset that is being sold. 

    As the cryptocurrency market surges on, it has become impossible to ignore and there is every indication that SARS will soon introduce a framework to specifically regulate these assets. At this stage, it is up to each individual to educate themselves and ensure they remain in good standing with SARS.

  • There is still a lot of uncertainty surrounding the payment of crypto taxes to the South African Revenue Service (SARS). The entity has published guidelines relating to the matter and has provided the South African Reserve Bank (SARB) with a position paper that includes recommendations for the development of a regulatory framework for cryptocurrencies. This means that the SARB could be providing more clarity on the specifics surrounding crypto assets and the taxation thereof in the near future. Until such a time comes, each case will be judged on its own merit and it is important for taxpayers to understand the view that SARS currently holds of cryptocurrencies.

    Which Tax Applies To Cryptocurrencies?

    According to their website, SARS applies “normal income tax rules” to crypto assets. In short, what this means is that income generated from crypto assets will be classified as either personal income or capital gains and thus be taxed accordingly. Individuals that are actively trading crypto assets or regularly generating profit will most likely be liable for taxes on a sliding scale according to the provisions of personal income tax laws. If a taxpayer is able to prove that crypto assets are used for capital gains, Capital Gains Tax (CGT) would apply and the taxpayer would be eligible for a significant annual tax exclusion. Taxpayers will essentially have to prove to SARS that income is not generated continuously, but only at the moment of sale, in order for CGT to apply when considering crypto taxes

    How To Remain Compliant

    In order to ensure that you don’t incur any penalties or fall into bad standing with SARS, it is advised that you declare all crypto-related income during the financial year. SARS makes provision on the Income Tax Return (ITR12) form for crypto assets where taxpayers are able to declare these separately. This allows the South African Revenue Service to investigate each case on its own merit in order to make a determination. It is clear that the entity has started to intensify its efforts to collect crypto taxes and anyone who trades in cryptocurrencies should take notice as more developments could unfold in the future.  

    Tax season is a turbulent time for most individuals and businesses. When faced with a relatively new concept such as crypto tax, it could become an increasingly stressful endeavour. Eliminate the uncertainty by entrusting your financial affairs to professionals! Booysen Accountants have a wealth of experience in the financial industry and regularly deal with the complexities surrounding crypto tax. Contact us on 012 740 7703, or emailThis email address is being protected from spambots. You need JavaScript enabled to view it. for more information on the range of services we provide.