Beware dodging SARS on your Bitcoin and Ethereum mining profits

[Jamie McKane]

Beware dodging SARS on your Bitcoin and Ethereum mining profits

While the use and trade of cryptocurrency remains largely unregulated, South African crypto miners cannot avoid paying tax.

 

[mk1]

SARS regards cryptocurrencies as intangible assets rather than as a currency, and said taxpayers can claim expenses associated with cryptocurrency accruals or receipts.

What does that mean?

 

[jannievanzyl]

SARS regards cryptocurrencies as intangible assets rather than as a currency, and said taxpayers can claim expenses associated with cryptocurrency accruals or receipts.

What does that mean?

You can deduct the cost of your rig and running costs. Also trading losses, if you have any.

 

[mk1]

You can deduct the cost of your rig and running costs. Also trading losses, if you have any.

That is good news, thanks for the reply.

 

[loftyninja]

SARS regards cryptocurrencies as intangible assets rather than as a currency, and said taxpayers can claim expenses associated with cryptocurrency accruals or receipts.

What does that mean?

They regard crypto currency holdings as an asset like a share or a bond, not a currency like rands or dollars. As Jannie says you can therefore deduct the cost of your rig and associated running costs (power) from revenue earned generating these assets.

The cheeky thing to do would be to be expense any and all PC upgrades against your crypto earnings, whether they be used for mining or not. Do I need this 34" 100hz g-sync screen to manage my mining operation? Absolutely.

 

[ekske1]

Beware dodging SARS on your Bitcoin and Ethereum mining profits.

But its cool to brag about your crimes on mybb

 

[Swa]

You can deduct the cost of your rig and running costs. Also trading losses, if you have any.

Which is a bit of a conundrum as they're only taxable once converted to cash or goods. So what if you haven't sold any during the year?

 

[JerryMungo]

Which is a bit of a conundrum as they're only taxable once converted to cash or goods. So what if you haven't sold any during the year?

Exactly. Do I then show a loss and claim some tax back for my mining efforts? What if I've swapped the proceeds of cryptomining for another asset such as a car or another miner? Most ASIC sellers require payment in crypto. What do I declare as the value of that piece of equipment if I'm buying crypto with my cash but the rig with crypto?

 

[Solitude]

It's all a bit complicated.

MyBroadband, it'll be great if you can write a guide on how to do it all. I made some money investing in Bitcoin but I invested years ago and then some more early last year. So I made a nice profit.

 

[MrGray]

It's all a bit complicated.

MyBroadband, it'll be great if you can write a guide on how to do it all. I made some money investing in Bitcoin but I invested years ago and then some more early last year. So I made a nice profit.

What most of these articles fail to mention is the difference between making profit as an income producing activity vs. as an investment.

If you purely bought, held and sold at a profit over a period as an individual and not an active day trader then you should declare the profit as a capital gain - i.e. it is not income. If you actively mine cryptocurrency then the Rand income from that is no different from income you would earn doing anything else and it should be taxed as income.

For individuals, the inclusion rate for Capital Gains Tax is 40% which means that you should add 40% of the profit on your sale to your income which will then be taxed at your marginal rate. Any other form of profit from the sale of crypto (mining, day trading, etc) would be 100% taxable as part of your income.

 

[JerryMungo]

For individuals, the inclusion rate for Capital Gains Tax is 40% which means that you should add 40% of the profit on your sale to your income which will then be taxed at your marginal rate. Any other form of profit from the sale of crypto (mining, day trading, etc) would be 100% taxable as part of your income.

Except that I don't plan to sell my mining gains right now because prices are down. I'd rather invest them for short to mid term... what then?

 

[MrGray]

Except that I don't plan to sell my mining gains right now because prices are down. I'd rather invest them for short to mid term... what then?

There is no tax liability until you sell them. How your expenses are accounted for in the interim seems to be the main quandary. Not sure how that would be handled.

The other issue is that when you do sell there would technically probably be two components - their value at the time that they were earned which would be your income from mining, and the value they gained while you held them as an investment which would theoretically be capital gains. How you would record and account for this in a way that would satisfy SARS is a bit of a mystery.

 

[JerryMungo]

Their value at the time that they were earned which would be your income from mining

Good luck deciding on that - who's value? Which exchange? And for the tiny hourly fractions earned or daily or weekly?

 

[MrGray]

Good luck deciding on that - who's value? Which exchange? And for the tiny hourly fractions earned or daily or weekly?

Well, spare a thought for our US counterparts that have to account for every single transaction, regardless of whether it was to fiat or not.

 

[Swa]

Good luck deciding on that - who's value? Which exchange? And for the tiny hourly fractions earned or daily or weekly?

And that's exactly it. The class of assets are actually worthless until you sell it so unless you trade it out for non-crypto there's no offsetting any expenses against it. Even if you use depreciation if you don't make any sales during the first 3 years you can't offset your cost. Trading for other crypto also doesn't change anything as those are worthless as well.

It's not that nobody wants to comply but rather that no authority has made it easy so far and implemented fair rules. I don't mind paying a small amount if I make it big but I see no reason why I must withdraw now to pay rather than when I cash out some day. I also don't see why simply because I choose to sell and buy back at a lower amount this isn't an investment taxed at 25% rather than income at 100%. Screw SARS. Blockchain isn't proof linking anything without the private keys and SARS aren't getting those.

 

[kianm]

You can see how complicated this can get