Bitcoin and SARS

[Thor]

Bitcoins might be on a good run now. It's actually stayed at the 8k+ range for a few months now.
But in a week from now your 2 bitcoins might be worth R5000 each as well.
All it takes is one more big hack or an exchange declaring bankruptcy.

It's just to unpredictable for me to leave a big amount of money invested in it for to long.

I hear you. I'm in such a two camp here on the one side I have people and companies religiously believing bitcoin in the future tesla is one of them.

And then on the other side I don't know what or why bitcoins are even worth what they are so no idea what Actually makes it sustainable apart from the FU central financial system and Rothschild

 

[MrGray]

It still has to be declared on your tax return irrespective how you end up accessing it.

Right, so if I hypothetically bought R50k of BTC on BitX and transferred it to a private wallet or cold storage immediately (so no currency transfer/sale occurred), what is it's status then?

And let's say I did this hypothetically a year ago so that R50k is now worth over R100k. Have I realised any gain even though it was never transferred into ZAR (and my BitX balance is 0 BTC)?

And is BTC considered an asset or currency? I can open a foreign currency dollar account through my bank. If I put R100k into that and the Rand halves in value against the dollar making it worth R200k, I'm not, as far as I know, liable for tax on the gain in Rand value on the account, so why would BTC be different?

Plus that value might hypothetically be nothing more than a private key printed out on a piece of paper somewhere and/or sitting on a USB stick.... in another country... with a copy in SA. So it's in both places. It's both left the country and it hasn't. Get your head around that SARS, LOL.

My intentions are not to circumvent SARS or do anything illegal at all, the point is rather that digital cryptocurrency is a round peg that will not fit into the square holes of conventional regulation and I have a feeling that SARS and other revenue services haven't really begun to understand how to deal with the implications.

 

[Thor]

/subscribes to my own thread

 

[koeksGHT]

Well i'm hoping the gains are ignored if we get downgraded.

 

[AchmatK]

Right, so if I hypothetically bought R50k of BTC on BitX and transferred it to a private wallet or cold storage immediately (so no currency transfer/sale occurred), what is it's status then?

And let's say I did this hypothetically a year ago so that R50k is now worth over R100k. Have I realised any gain even though it was never transferred into ZAR (and my BitX balance is 0 BTC)?

And is BTC considered an asset or currency? I can open a foreign currency dollar account through my bank. If I put R100k into that and the Rand halves in value against the dollar making it worth R200k, I'm not, as far as I know, liable for tax on the gain in Rand value on the account, so why would BTC be different?

Plus that value might hypothetically be nothing more than a private key printed out on a piece of paper somewhere and/or sitting on a USB stick.... in another country... with a copy in SA. So it's in both places. It's both left the country and it hasn't. Get your head around that SARS, LOL.

My intentions are not to circumvent SARS or do anything illegal at all, the point is rather that digital cryptocurrency is a round peg that will not fit into the square holes of conventional regulation and I have a feeling that SARS and other revenue services haven't really begun to understand how to deal with the implications.

Assets, liabilities, income and expenses are always converted to Rand values irrespective of where it's held or in what currency or instrument it is held in. SARS has a guide on the different conversin options that taxpayers can use. Either the Spot Price at the time of the transaction or the 12 month average exchange rate which is published on the SARS website.

S24I of the Income Tax Act deals with "Exhange Items" and defines it specifically in that sesction. It is only really applicable to Natural Persons if the Exchange Item is considered as trading stock. SARS has also issued an Interpretation Note for S24I.

If a company, trust or person(only if its considered as trading stock) holds an exchange item and the value increases in rand terms, the increase in value is not treated on the capital account but on the income account. and taxed accordingly. I was involved in a VDP(Voluntary Disclosure Program) application a few years ago where the local auditors of a company failed to include gains on exchange items in the AFS or tax return as they were not aware of the implications of S24I. The company held shares in a US listed company and USD in an offhsore account for more than 5 years. In this time, the share price increased and the Rand weakened. The Rand value of their investment more than tripled and they were liable for the tax on this gain even though it was not yet realised. I managed to get the penalties waived but the tax and interest was still more than R1.5m.

My opinion is that BTC is a currency. SARS has aready started to address crypto currencies recently. SARS is very much aware of loopholes within the tax legislation and is constantly reviewing the legislation with amendments being passed every year.

 

[MrGray]

Thanks for the info, signate.

So basically, unless you're regularly trading BTC for profit, gains would not be taxable as income, but what about the capital gain? If it is essentially a currency that you can spend like cash and never convert back to ZAR, would CGT ever apply?

Lastly, if SARS needed to know how much BTC I hold, how would I be able to show that balance in any verifiable way if it is "held" in one or more wallets somewhere, possibly even offline in cold storage? Bear in mind that income in BTC could have been transferred to multiple anonymous addresses for multiple wallets at any time or I could also have spent some of that BTC. I could transfer back to BitX to show a balance but there would be no way of verifying if I'd transferred the full amount.

I could theoretically be earning income in BTC from offshore sources but even with best intentions of declaring it have no way of verifying this to SARS other than my word.

 

[AchmatK]

The problem with most tax systems is that there is a huge reliance on the honesty of the taxpayer in declaring all transactions on their tax returns. SARS has no way of knowing every single taxable transaction but they are constantly improving their monitoring by getting other third parties to do the reporting to them.

As an example, I know of a few taxpayers that do not declare there rental income even though it flows through there bank accounts. If however they were to use a rental agent to collect the rent, the rental agent must declare to SARS all rental paid over and issue the home owner with an IT3b tax certificates. On this point, I've worked with a few rental agents and many are not aware that they must make this declaration to SARS and issue an IT3b.

 

[pratlou]

/Subscribed

 

[Thor]

Very insightful, I will just keep it all in bitcoin and spend it in thailand

 

[Monsta Graphics]

Here's a question for all of you.

1. I take my R50,000 and buy Bitcoin, am I taxed?

2. I keep the Bitcoin in my wallet for a year and it theoretically becomes worth R100,000 should I decide to sell, am I taxed?

3. I decide to use that bitcoin and buy a car from a person who wants my bitcoin, am I taxed?

4. I sell that car for Rands, am I taxed?

 

[AchmatK]

Here's a question for all of you.

1. I take my R50,000 and buy Bitcoin, am I taxed?

2. I keep the Bitcoin in my wallet for a year and it theoretically becomes worth R100,000 should I decide to sell, am I taxed?

3. I decide to use that bitcoin and buy a car from a person who wants my bitcoin, am I taxed?

4. I sell that car for Rands, am I taxed?

1. No

2. No in most cases where it's held in your personal capacity and you don't sell it. If you sell it, then yes.

3. Yes. Even though it was never converted to ZAR, you have realised a gain as soon as it was used in the transaction you mentioned. The onus however is on you to declare it. If not declared, it can be considered as tax evasion by SARS and not avoidance.

4. No. Addressed in 3 above.

SARS might never become aware of the transaction though.

Tax evasion is a criminal offence. Tax avoidance is simply structuring your tax affairs in the most tax efficient way. There is however something that SARS considers as a Tax Avoidance Scheme.

Tax is also not just applicable to cash transactions but also where any financial value is involved.

As an example, if I own a property and gift it to my son while I'm alive, I would be liable to pay donation tax on the value of the property donation except for the first R100k at 20%. I could however overcome this by selling the property to him at a market related price. I would charge interest on this amount annually and write off R100k every year as a donation to my son. Eventually his debt to me would be zero and no donations tax would have been paid. SARS might consider this a Tax Avoidance Scheme but it would be for them to prove the intent of the transaction.

A good Tax Accountant should be able to assist but they don't come cheap. Tax lawyers are even more costly.

 

[MrGray]

Signate, if I transfer R50000 to a legitimate personal Dollar denominated account via my bank and the Rand halves in value, when I later transfer R100000 back would I be taxed on that? Assuming there were no transactions in the Dollar account, i.e. no assets were bought or sold, why would I be taxed? Section 24I only applies to currency used as trading stock, forward exchange contracts, or foreign currency option contracts, none of which I would think applied to my personal Dollar denominated account as it was not utilised for any commercial purpose. Similarly, if Bitcoin is treated as a currency then why would that be taxed?

 

[AchmatK]

Signate, if I transfer R50000 to a legitimate personal Dollar denominated account via my bank and the Rand halves in value, when I later transfer R100000 back would I be taxed on that?

When you transfer it from dollar to ZAR you are realising the gain and would be taxed on the gain made.

Assuming there were no transactions in the Dollar account, i.e. no assets were bought or sold, why would I be taxed? Section 24I only applies to currency used as trading stock, forward exchange contracts, or foreign currency option contracts, none of which I would think applied to my personal Dollar denominated account as it was not utilised for any commercial purpose. Similarly, if Bitcoin is treated as a currency then why would that be taxed?

You would not be taxed as indicated above. Only if you use the bitcoin to purchase a good or service would you be taxed on the gain at that point and not while you are holding it.

 

[C4Cat]

/side-note/

Bitcoin is not recognized as a currency or legal tender in South Africa. I don't know how that does or doesn't relate to tax and SARS but it's not a currency and has no value in and of itself.

Currently in South Africa there are no specific laws or regulations that address the
use of virtual currencies. Consequently, no legal protection or recourse is afforded to
users of virtual currencies.
Due to their unregulated status, virtual currencies cannot be classified as legal
tender as any merchant may refuse them as a payment instrument without being in
breach of the law. In addition, virtual currencies cannot be regarded as a means of
payment as they are not issued on receipt of funds. The use of virtual currencies
therefore depends on the other participant’s willingness to accept them.

While virtual currencies can be bought and sold on various platforms, they are not
defined as securities in terms of the Financial Markets Act, 2012 (Act No. 19 of
2012). The regulatory standards that apply to the trading of securities therefore do
not apply to virtual currencies.

http://www.treasury.gov.za/comm_media/press/2014/2014091801 - User Alert Virtual currencies.pdf

 

[MrGray]

When you transfer it from dollar to ZAR you are realising the gain and would be taxed on the gain

Are you sure about this, because my understanding is that since 2011 SARS simplified the rules for individuals - currency gains or losses are not taxed? If I had realised a gain in an asset purchased and sold using that dollar account then that capital gain would be taxed using the rates when I bought and sold the asset, but a simple currency gain would not be.

 

[Thor]

/side-note/

Bitcoin is not recognized as a currency or legal tender in South Africa. I don't know how that does or doesn't relate to tax and SARS but it's not a currency and has no value in and of itself.


http://www.treasury.gov.za/comm_media/press/2014/2014091801 - User Alert Virtual currencies.pdf

Interesting thank you.

 

[MrGray]

/side-note/

Bitcoin is not recognized as a currency or legal tender in South Africa. I don't know how that does or doesn't relate to tax and SARS but it's not a currency and has no value in and of itself.


http://www.treasury.gov.za/comm_media/press/2014/2014091801 - User Alert Virtual currencies.pdf

Interesting. So basically SARS categorizes it as a kind of virtual nothing, neither a security or currency. I have a feeling that this status quo will change quite quickly if Bitcoin grows much more in popularity and gains any level of mainstream adoption. It also seems to imply that there can be no real tax implications, at least if you're not trading it actively for profit, which seems to be the approach BitX takes as well, but then again, once you've moved it out of BitX into a local wallet there would be no practical way to ascertain this apart from correlating your details on international exchanges like OKCoin and Poloniex.

 

[Thor]

Interesting. So basically SARS categorizes it as a kind of virtual nothing, neither a security or currency. I have a feeling that this status quo will change quite quickly if Bitcoin grows much more in popularity and gains any level of mainstream adoption. It also seems to imply that there can be no real tax implications, at least if you're not trading it actively for profit, which seems to be the approach BitX takes as well, but then again, once you've moved it out of BitX into a local wallet there would be no practical way to ascertain this apart from correlating your details on international exchanges like OKCoin and Poloniex.

That is what I was thinking....

Not that I have malicious intend, but I mean I really do not think that paying tax on currency fluctuations is fair.

 

[MrGray]

That is what I was thinking....

Not that I have malicious intend, but I mean I really do think that paying tax on currency fluctuations is fair.

Fair, why? There is no tax on pure currency fluctuations for individuals. If, however, you buy and sell an asset in a foreign currency that's where the conversion to ZAR comes in to calculate CGT. There is a deeper principal here - when your local currency declines in value, you obviously can't claim a loss, so taxing you on a gain in value of your foreign currency is illogical.

 

[Monsta Graphics]

3. Yes. Even though it was never converted to ZAR, you have realised a gain as soon as it was used in the transaction you mentioned.

You telling me If I buy a Pack of Pokemon cards and get a super rare card.... hold onto it for a while, and then trade it to a buddy for his car... Tax must be paid for this trade?
How the hell does tax get involved if me and my mate trade "stuff"?