Yes, you can be taxed on your cryptocurrency in South Africa. SARS is closing in on cryptocurrency (crypto) and is increasing its technological capabilities to track cryptocurrency transactions. Although it might not be taking steps to force cryptocurrency trading platforms to disclose all trades made at this point, SARS is able to track profits made from crypto trading when converted into Rands and can tax you accordingly.
Does SARS have information about your crypto?
Currently, while crypto platforms are not obliged to report on their clients’ trading activities as other financial services providers are required to, this does not obstruct SARS from exercising its broad powers to investigate taxpayer information. Luno (a popular cryptocurrency trading platform) has reported that “Luno does not share customer information with SARS on a routine or ongoing basis”, alluding that while information is not shared often, it is shared.
How is crypto viewed by SARS?
SARS does not view cryptocurrency as currency for the purposes of taxation. Crypto is viewed broadly as an intangible asset by SARS. Crypto can be treated as either an asset (which attracts capital gains tax) or trading stock (which attracts income tax). Tax is attracted to crypto transactions not only when the cryptocurrency in question is withdrawn and converted to a legal tender (such as Rands), but when one crypto is traded for another – for example, if you sell your Bitcoin and buy Ethereum at the same time. The profits on this transaction would notionally be taxable.
SARS customarily marks crypto trades as trades for hobby purposes – unless you can prove otherwise, i.e. that you are trading in crypto for business purposes. If you are a professional who trades in crypto, you may want these trades to fall under your business activity for tax purposes, rather than in your personal capacity which could attract a different tax calculation.
This will require the assessment and presentation of a number of factors to SARS:
- As a business venture trading in crypto, your crypto expenses should be in proportion to the gross income derived from your trading in crypto.
- You should be able to show how and where you have advertised and sold your services and crypto itself if your business is mining crypto.
- You should be trading in a commercial manner, which includes showing:
- a number a full-time employees employed for the purposes of trading crypto,
- having commercial premises and presenting a business-like appearance,
- having equipment for trading purposes,
- spending the usual time at these premises for business purposes,
- having a business plan,
- showing extensive use of cryptocurrency, beyond for mere personal use.
All these factors may look different depending on the crypto trader in question. For example, with COVID-19 it is increasingly common for businesses, while perfectly legitimate, to operate without premises and completely online. This doesn’t mean you won’t qualify as a trader of crypto for business purposes, but that a different case will need to be made to SARS in motivating why you should qualify.
As an individual (a natural person, not a registered company) trading in cryptocurrency, the loss you incur on your crypto trades may be ring-fenced and set off from taxation on your future profits in the following financial year. This decision is the tax-payer’s to make, but may be reviewed by SARS, taking into consideration your overall tax bracket, the nature of the activity, your business plan and how often you have previously made a loss.
There are no VAT consequences on crypto as it is regarded as a financial instrument which is an exempt supply.
There are 3 types of cryptocurrency transactions which can be made:
- The Process of Mining,
- Purchase of Goods and Services with Cryptocurrency,
- The Trading of Cryptocurrencies (Including purchase for trading & long-term investment).
It is easier to assess how you may be taxed with regards to 2. and 3., however there is little guidance from SARS on how 1. might be taxed. There is an assumption that crypto generated through mining will automatically be regarded as crypto for trading purposes and that if it is traded you, the person who mined the crypto, will need to declare that income as normal income produced due to income-generating activities. However, it may be the case that mined and sold crypto could be classified as an investment, depending on the particulars of how it is mined.
Crypto should be valued as at date of purchase or sale. Of course this becomes more difficult if you keep all your crypto in one place and purchase and sell it in different quantities. This is a consideration to make and you should try to separate your transactions accordingly for tax purposes. SARS does not regard crypto as a share and will not treat its value as an average for the year.
Example of taxation:
- You purchase 1 Bitcoin on 2 June 2020 for R180 000.
- You sell that 1 Bitcoin for R500 000 on 1 June 2021.
Because you sold this Bitcoin within 12 months of purchase, it will be regarded as income from trading rather than investment and will be subject to income tax according to your income tax bracket. This is calculated as:
- R500 000 – R180 000 = R320 000
- R320 000 will be added to your gross income for the year of 2021
However, if you had sold this Bitcoin for R100 000 you would incur a R80 000 loss which would reduce your income for the year 2021. If you are trading as an individual this loss could be ring-fenced and only set off against trading income for 2022.
If you purchased this Bitcoin more than 3 years before its sale then it will be regarded as an asset for investment purposes. The tax on the sale of this asset is calculated by subtracting the exemption on capital gains (R40 000) from your profits and multiplying that amount by 40%.
For example, if you bought this Bitcoin on 2 June 2018 for R50 000 the calculation would be:
- R500 000 – R50 000 = R450 000
- R450 000 – R40 000 exemption = R410 000
- R410 000 x 40% = R164 000 to be added to your taxable income for 2021.
What is your duty as a taxpayer?
SARS says that the responsibility rests with taxpayers to declare all taxable income in respect of cryptocurrency in the tax year in which it was received or accrued. If you mined cryptocurrency; bought any cryptocurrency; exchanged cryptocurrency for another cryptocurrency; or were in any way paid in cryptocurrency, it must be declared. Remember to keep all receipts for trades in order to track your buying and selling prices.
What happens if SARS suspects that you have earned undeclared income?
If they conclude that you earned undeclared income, SARS will issue an additional assessment to include cryptocurrency. This assessment may include penalties and interest. Stringent penalties may include up to two years imprisonment.
Determining the nature of and tax on your crypto transaction:
The below tax tables1 provide assistance on how you may be taxed on your crypto transactions. Note that while they can provide guidance on how tax may be charged, each case must be assessed as a whole to have view of the entire circumstance of the transactions.
|Are you actively trading with cryptocurrency?
|Did you purchase the cryptocurrency as a long-term investment?
|Did you purchase the cryptocurrency more than 3 years ago?
Income and Capital Gains Tax Calculation Guide:
|Income received from trading with cryptocurrency.
|Proceeds from selling the cryptocurrency.
|All expenses incurred in producing the cryptocurrency income
|Base cost of the cryptocurrency.
|Included in your total taxable income that will be taxed as per normal tax tables.
|It will be added to the total of capital gains for the year less R40 000 annual exclusion and then 40% of the balance will be added to your taxable income that will be taxed as per normal tax tables.
|Loss will most likely be ring-fenced unless you can prove you are trading as a business.
|Will be set-off against other capital gains from other assets.
About the author
Megan started her articles with Dunsters in 2020 and is a graduate of the University of Cape Town (B.COM PPE, LLB). Megan is in the commercial team at Dunsters and enjoys working on drafting all kinds of contracts as may suit our clients’ needs. Her areas of interest lie broadly in the commercial sphere, with a more specialised focus on technology and the law. Megan also writes and oversees the editing of our insights and articles.
In her spare time Megan is Chairperson of the Cape Town Candidate Attorneys’ Association, loves to paint and prefers to spend her weekends outdoors. Cold-water swimming, running and hiking, she is keen on all the outdoor activities Cape Town has to offer.