Cryptocurrencies – Are you looking for some Information on the tax implications?

Cryptocurrencies – Are you looking for some Information on the tax implications?

South Africans have shown a great appetite for cryptocurrencies.

Coinmarketcap gives a figure of approximately R6.5bn for the South African market.

While the actual figures remain unclear, what we do know is that SA Revenue Service (Sars) has cryptocurrency trading set in its sights.

Bitcoin and other cryptocurrencies have notched up considerable gains in the past year and more, so it is not surprising that South Africans are looking at cryptocurrencies as an investment opportunity; however, very few consider the tax implications of these cryptocurrency investments.

As an investor, it is your duty to understand your tax obligations concerning your crypto investments and then plan accordingly. If not, you could find yourself in some hot water down the line.

According to Thomas Lobban, legal manager and cross-border taxation at Tax Consulting South Africa.

“Depending on how and why the trades are conducted, some crypto transactions could be deemed to be capital in nature and thus liable only for capital gains tax — however, other transactions could be deemed to be revenue-earning in nature and would thus be taxed according to the taxpayer’s normal tax rate as per the tax tables.

Based on our work with clients, it’s clear that a major misconception is that a ‘tax event’ only occurs when the cryptocurrency is withdrawn and converted into legal tender, but that’s not true. If a trade is made between, say, Bitcoin and Ethereum, the notional profits of that transaction would also be taxable.

While there is as yet no legislation forcing cryptocurrency platforms to report on their clients outside of the general provisions of the relevant tax Acts, such as financial service providers are required to do, the walls are closing in fast.

Sars has already begun asking for information on crypto transactions on audit letters issued to taxpayers, and this means that non-compliant taxpayers will either have to lie and risk incurring further penalties and back tax later or reveal their trading history. Not providing accurate answers constitutes a criminal offence.”