Regulation
Tax crunch looms for crypto traders in South Africa, experts say – BitKE
The South African Revenue Service (SARS) is targeting cryptocurrency traders for potential non-compliance, local tax experts say.
Tax professionals at Tax Consulting SA stressed that taxpayers must recognize that cryptocurrency-related activities, even if conducted on the platform and not necessarily resulting in fiat currency earnings, are subject to rigorous reporting requirements. This includes reporting and paying taxes due on any benefits accrued from these activities.
“SARS and the South African Reserve Bank (SARB), through existing working groups and international exchanges of information, have reiterated their already strong position on the elimination of non-compliance. This includes a strong focus on the taxation of cryptocurrencies and rectifying historical taxpayer problems related to under-reporting of crypto-related profits or earnings, albeit without providing firm guidance to the average taxpayer,” they said.
Addressing the perception that cryptocurrencies are not subject to SARS taxation, experts have clarified that under South African tax law, cryptocurrencies are classified as financial instruments under the provisions of the Income Tax Act.
“This means that any profits from cryptocurrency trading could fall within the tax net and be subject to disclosure and possible liability to SARS. As simple as this revelation may seem in theory, unfortunately the reality is more complicated. Cryptocurrency transactions are subject to a variety of tax regulations, including capital gains tax, income tax and in some cases even VAT,” they said.
A common misconception within the crypto community is that a “taxable event” only occurs when a crypto asset (CA) is disposed of, resulting in the realization of profits or gains in fiat currency. However, any sale, exchange (CA for CA) or disposal of cryptocurrencies is likely to be considered a taxable event.
The critical factor that determines the tax liability is whether the transferred cryptoasset is classified as a capital asset or as a trading security. If taxpayers can demonstrate correct pecuniary intent and objective external factors, they will only be subject to Capital Gains Tax (CGT).
“Like the sale of a house, CGT liability arises if the profits received from the sale of cryptocurrencies exceed the initial cost and have a lower rate of taxation than if the proceeds of the sale were treated as ordinary income,” the experts said.
If SARS considered profits from cryptocurrency operations as income, they would be taxed at the marginal rates applicable to individuals, which can be up to 45%, or to companies, at 27%. This is especially relevant for frequent traders, as their crypto assets could push them into higher tax brackets.
Following significant returns in the cryptocurrency sector, it may be tempting to “cash out” and spend the profits on luxury items. However, it is important to remember that SARS is intensifying its crackdown on cryptocurrency tax compliance and demanding its share.
Individuals who hold or have ever held cryptocurrency should not assume that past failure to report will protect them from future tax liabilities. SARS has made it clear that it will leave no stone unturned in its mission to raise revenue by any means necessary.
Furthermore, the belief that SARS cannot investigate beyond five years is incorrect. SARS has every right to examine all historical transactions if a taxpayer has failed to disclose material facts, committed fraud or made false statements.
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