Bitcoin investments can cause tax implications in South Africa

Swa

Honorary Master
Joined
May 4, 2012
Messages
27,999
Well I guess everyone will have to make up their own mind. And frankly I don't care if your tax return wins a Hugo award for best work of fiction. That's very much your own business

But there are others reading this too, so lets contrast the two views:

On the one hand we've got an analysis by a tax partner/lawyer/CA at a major law firm saying one thing. Said tax expert could indeed be wrong and there is no case law as you say. Nor clarity in law. Nor is the crypto memo particularly clear.

So lets play your version through.



So I barter my BTC asset for a ETH asset at exactly at market BTC/ETH. No tax. Awesomness.

Then I take my ETH and barter it for another asset - a car, again at market rate. No tax. Awesome. Drive the car for years and then dump it on the side of the road. Got my years of use out of it and managed to sneak the gains on my BTC past SARS without them ever seeing a penny. Car dealership approves too. They didn't collect any taxable revenue! In fact I can probably do that with groceries too. And well basically everything.

Or maybe a car is not "like for like" enough for you? The one is after all an intangible asset. How about I swap my ETH for a patent. Or shares? Or right to utilise a car? Or perhaps a DeFi contract if we're keeping it crypto? DAO voting rights? Or maybe you think like for like means only coins? How about I swap my BTC to something with high APY and live off that for the rest of my life. Literally never exit the crypto universe and those 100s of percent gains made just never get taxed till death. I just declare my staking income. Once dead nobody has the keys so that crypto goes up in smoke. SARS never sees a penny on those glorious 100s % BTC gains. Never fiat again!

At the risk of stating the obvious...SARS is in the business of collecting tax. There is indeed some uncertainty but if I'm filling out tax returns I don't assume an interpretation that basically implies SARS closes shop because everyone is too busy dreaming up clever barter schemes of all flavours in this brave new world of creative tax structuring and fiat dies.

Still no? UK and US have both said BTC<>ETC is taxable event.

Still no? Look at SARS's crypto memo. Specifically:


Look very carefully at their choice of words "realized [...] through a barter transaction". I'd personally interpret that as gains realising (cause not sure what else you'd realize frankly), but it's somewhat vaguely worded.

Anyway...two opinions...one of them is gonna to be wrong & result in a sht load of serious tax problems for whoever went with it (or they'll just realize they ****ed up their past returns badly and go with tax evasion option). My money is on the "without incurring tax" crowd catching the wrong end of the stick but who knows. Swa's version would certainly be 100x more fun.

I disagree that it's just opinions and we'll have to wait till there is case law though. My crystal ball says we'll know soon. Look at the last time SARS opened it's mouth on crypto

View attachment 1065403
Just about enough time to realize there is a spike in people's net wealth and get a memo through internal reviews to cover it. Going out on a limb here but I don't think that pretty spike on the right snuck past the chaps over at SARS...
And this is where you misunderstand things and go reductio ad absurdum. Now first remove the words crypto and currency because those are just confusing you. Now Sars has declared that it's an asset. So let's look at how assets are treated, specifically capital.

I specifically said like for like. Paying for my haircut by using a bag of apples is not like for like. In both cases a benefit was realised. But suppose I have a property in Sandton worth R10m and you have one in Cape Town worth R10m. A simple exchange would not result in any monetary benefit specifically as linked to the capital nature of the transaction.

Your mistake is in assuming that no tax is paid. That is not the case. In reality tax is deferred and paid on the original purchase price when disposing of the property.

Now back to crypto. Sars has taken the stance it's not currency. Interestingly currency has no definition in tax law. A court may decide it is currency or a hybrid or even dependent on intent.

On to the second part. Sars has decided it's an asset. What type of asset isn't clear as they themselves don't know. The car analogy is flawed. The key is that in all barter transactions where like for like assets are traded there is no financial benefit arising out of the transaction and the assets retain their capital nature instead of merely being employed to avoid using currency. There is no avoidance of paying tax as the net taxable amount at the end is still the same.

It may be the case that crypto is a capital asset or it may be that it's used as a medium of transacting. You can refer to experts all you want but that's no different to referring to experts about the start of the universe, just nobody knows at this point. It was mentioned by someone here how complex tax law is. Ask two "experts" the same question and both will likely give you a different answer based on established law. And you expect there to be a clear answer to something like crypto? Just a big fat LOL to that.

As always the advice is to consult with a professional but know they may not be right. Until case law is established it's all just guess work at this point.

The big irony is that those who keep claiming they don't owe Sars anything because they trade on Bitmex and don't do conversions may be most liable here. Under tax law it makes no difference. Fruit of the tree applies. The tree is the activity that generates a profit in this case trading. If at the end of the day you have more than what you started with you have undertaken an activity that generates a profit and is liable to paying tax. It's no different to mining.
 

HavocXphere

Honorary Master
Joined
Oct 19, 2007
Messages
33,156
In reality tax is deferred
And that's where it goes off the rails.

There is little reason to believe SARS will allow such a deferral mechanism. And where they have it usually comes with strict criteria (e.g. carrying over CGT base on replacement assets)).

And there are multiple reasons to believe they will not. See the language in crypto memo talking about realized via barter for example. Realized is pretty much the opposite of deferred.

Your rationale assumes the future existence of such a mechanism / concession. They could carry over the logic from real estate, but that is one hell of a stretch - about equal to my car one you dismissed as absurd (it was I know).

Crypto spiked right before tax year end and chances are fair few people shuffled sizable coin amounts around in Jan-Feb to catch Eth rise etc. That's potentially a hell of a lot of people understating their taxable income dramatically based on your post if this deferral mechanism fails to materialize.

(Conversely if it goes the other way you'd have to fight to get your money back which would suck big time too but at least not involve SARS's wrath.)

As always the advice is to consult with a professional but know they may not be right. Until case law is established it's all just guess work at this point.

Agreed re experts. It's all guess work indeed, but that willfully ignores that some outcomes are far more likely than others.

I think your take is both quite aggressive and highly unlikely. It contradicts experts in the field, contradicts precedents from other countries and frankly...it assumes a country under pressure to make up massive revenue shortfalls hands out generous tax treatment to freshly wealthy people while they're talking about raising all sorts of taxes and going after high net wealth individuals in a targeted way. I personally think the chances of my fav shtcoin mooning is better.

Case law. Disagree. The more likely version imo is SARS issues an interpretation note and starts enforcing that actively.

To fix that you or another lucky mybb'er would have to challenge that interpretation in court with burden of proof being against them:

As a basic principle, under section 102(1) of the Tax Administration Act 28 of 2011 (the TAA), the onus of proof that an amount is not taxable or that an amount is deductible, rests on the taxpayer

...and doing so while:
  • Freshly rich, yet didn't put gains on return
  • Case concerns an instrument that is practically famous for being off the books & associated in popular consciousness with all sorts of things you don't want mentioned in front of a judge
  • Chances of you getting a judge that fully understands crypto well enough to counteract the above are not amazing
Its not gonna be a good look frankly. I'd love to sit & watch it from the peanut gallery though cause I can imagine it being epic

Returns aren't due for a while though so with a bit of luck there is clarity before people have to commit to one of the so called guesses.
 

Swa

Honorary Master
Joined
May 4, 2012
Messages
27,999
And that's where it goes off the rails.

There is little reason to believe SARS will allow such a deferral mechanism. And where they have it usually comes with strict criteria (e.g. carrying over CGT base on replacement assets)).

And there are multiple reasons to believe they will not. See the language in crypto memo talking about realized via barter for example. Realized is pretty much the opposite of deferred.

Your rationale assumes the future existence of such a mechanism / concession. They could carry over the logic from real estate, but that is one hell of a stretch - about equal to my car one you dismissed as absurd (it was I know).

Crypto spiked right before tax year end and chances are fair few people shuffled sizable coin amounts around in Jan-Feb to catch Eth rise etc. That's potentially a hell of a lot of people understating their taxable income dramatically based on your post if this deferral mechanism fails to materialize.

(Conversely if it goes the other way you'd have to fight to get your money back which would suck big time too but at least not involve SARS's wrath.)
Well it's not really going to be up to Sars as I've said. The mechanism is already in place so nothing will change, only the treatment of a new asset class under it. Deferral as I've stated does not mean tax isn't paid so Sars doesn't lose out. If tax is deferred it actually pushes you into a higher tax bracket than if some of it is paid now.

Agreed re experts. It's all guess work indeed, but that willfully ignores that some outcomes are far more likely than others.

I think your take is both quite aggressive and highly unlikely. It contradicts experts in the field, contradicts precedents from other countries and frankly...it assumes a country under pressure to make up massive revenue shortfalls hands out generous tax treatment to freshly wealthy people while they're talking about raising all sorts of taxes and going after high net wealth individuals in a targeted way. I personally think the chances of my fav shtcoin mooning is better.

Case law. Disagree. The more likely version imo is SARS issues an interpretation note and starts enforcing that actively.

To fix that you or another lucky mybb'er would have to challenge that interpretation in court with burden of proof being against them:



...and doing so while:
  • Freshly rich, yet didn't put gains on return
  • Case concerns an instrument that is practically famous for being off the books & associated in popular consciousness with all sorts of things you don't want mentioned in front of a judge
  • Chances of you getting a judge that fully understands crypto well enough to counteract the above are not amazing
Its not gonna be a good look frankly. I'd love to sit & watch it from the peanut gallery though cause I can imagine it being epic

Returns aren't due for a while though so with a bit of luck there is clarity before people have to commit to one of the so called guesses.
This is the part I disagree with. This is unprecedented so we do not know which way will be ruled. As I just pointed out such a treatment would not be a generous one from a taxing perspective and courts are not concerned with the wealth of an individual. It may even be that Sars' treatment of it as an asset rather than a currency is ruled as neither practical nor rational.

Case law is all where it's at. You literally don't even have to look at tax law and can look at case law to know how tax law applies.

Interesting you mention other countries treatment of CC as the IRS has taken a stance to treat it as an asset while the SEC explicitly states it's not a security but a replacement for sovereign currencies. If these two can't even agree I fail to see how any outcome is more likely than the other.

Sure I would like to see Sars come up with a true workable clarification rather than the existing confusion that it falls under current treatment of assets. I would welcome that but I also think we are sooner likely to see pigs fly.

I think no matter what we are going to see court cases in the next few years if they decide on a crackdown as it's simply not possible for everyone to be compliant under the current mechanism.
 

HavocXphere

Honorary Master
Joined
Oct 19, 2007
Messages
33,156
The mechanism is already in place so nothing will change
OK so lets maybe stop there.

You seem very certain that this deferral mechanism that will apply to crypto is already in place right now, meanwhile I'm not aware of any such thing so clearly we're working on very different base assumptions here. Should be easy to resolve.

You keep bringing up houses repeatedly, so I'm assuming you're going by this document talking about a house swap?

We can go into the whole crypto as a house thing if you insist, but before we mission down that bizarre avenue I just want to check where exactly you think contains this deferral mechanism that will apply to crypto is. It the above house swap logic what you want to apply to crypto do you have something else in mind?

Like specifically. What court case or section of the income tax act or any other act or interpretation note captures this deferral mechanism that you envision as applying to crypto? Now I know you want to tell me something along the lines of
Brush up on standard tax law before trying to bring in crypto.
...but humour me here. Explain it to me like I'm an idiot in desperate need of brushing up on standard tax law...where exactly this deferral mechanism is.

Haven't studied SA tax law in many years so it's entirely possible that I'm just blissfully unaware of the key bit of info here
 

Stefanmuller

Expert Member
Joined
Mar 12, 2008
Messages
2,904
In wont worry too much at this point. The only real way for SARS to go after crypto is to get the exchanges to issue the equivalent of a tax certificate or transaction history by getting someone like Luno to comply with with whatever SARS thinks they will require.

I would think that in the case with Luno where you also have a wallet with them, Luno will be able to extract reports that differentiate between normal wallet transactions and actual transactions on the bitcoin/crypto exchange. Afterall a company like Luno still needs to keep book of their own transactions much like a bank.

I would think that the easiest to go after is actual cashouts from crypto to ZAR. Any unrealized gains on crypto holdings at year end shouldnt be taxible.

By the way even the most common passive share portfolios or balanced fund or whatever is pretty darn difficult to calculate the actual capital gains was it not for the institution issuing a tax certificate. They are required to by the FSB and Sars. No reason why the same cannot be required and provided by Luno - bitcoin is purchased on a set date at a set price and exchanged or cashed out on another date at a certain price, much like shares. Or what am I missing?
 

Swa

Honorary Master
Joined
May 4, 2012
Messages
27,999
OK so lets maybe stop there.

You seem very certain that this deferral mechanism that will apply to crypto is already in place right now, meanwhile I'm not aware of any such thing so clearly we're working on very different base assumptions here. Should be easy to resolve.

You keep bringing up houses repeatedly, so I'm assuming you're going by this document talking about a house swap?

We can go into the whole crypto as a house thing if you insist, but before we mission down that bizarre avenue I just want to check where exactly you think contains this deferral mechanism that will apply to crypto is. It the above house swap logic what you want to apply to crypto do you have something else in mind?

Like specifically. What court case or section of the income tax act or any other act or interpretation note captures this deferral mechanism that you envision as applying to crypto? Now I know you want to tell me something along the lines of

...but humour me here. Explain it to me like I'm an idiot in desperate need of brushing up on standard tax law...where exactly this deferral mechanism is.

Haven't studied SA tax law in many years so it's entirely possible that I'm just blissfully unaware of the key bit of info here
I'm aware of that but not what I'm referring to exactly. The first time I heard it I was surprised that 1) barter transactions are taxable as they don't involve money and 2) that some transactions are exempt. I'm sure the actual law was referenced but unfortunately every search now for barter trading or taxation just brings up articles on crypto. Oh well so that's that I have to go with what I can get.

The "home swap" in this case isn't one where ownership of a property was exchanged but more like a time share scheme. So we can skip past receiving of goods or property. In this case there was a scheme where use of a property was traded and not the property itself. I don't know exactly how this works but there was also some kind of points system in place which functioned as a replacement currency.

In the first case the trading of use of a property is akin to a rental agreement. There is a benefit received which can be converted into a cash value. In the second case the point system is one in where a profit is realised. A person receives a currency in return which is the same as rental income. It does not matter that this can only be spent within the scheme as if the transactions were conducted using fiat money they would be taxed the same way that rental income is.

Now back to the original point. If we look at section 2.7 there are only two types of benefits, income and capital. Income is different than capital and is immediately taxable. If they weren't there would be no need for courts to distinguish between the two and apply different tax treatments. Only receipts or accruals of a revenue nature fall under normal tax. Capital gains and receipts are treated differently. Interestingly again the ITA does not stipulate what capital receipts are and this is again left to the courts to determine.

There's no single test available and only some general ones employed by the courts. The first one is whether there's a profit making scheme. Back to my analogy of the haircut and bag of apples. Goods or services are being traded. A bag of apples is acquired for a specific amount in whichever way. This is then sold for a different amount. A service is being provided for a specific amount. That makes the enterprise profit driven. An increase or accrual of value is being generated by the activity and any profit derived is therefor taxable.

You might say that crypto is profit driven. If that was the case then so is buying shares in company x, it's not a given that it's the case. Yes profit is ultimately generated but not from the activity itself but rather externally. You did not pick the price point at which to buy or sell. Rather the accrued value (if any) of the asset was realised from the value of the asset itself.

The second is that of the fruit and tree analogy. In the case of the home swap the benefit is temporary but recurring. Crypto is different. Once a transaction is concluded any benefit that arises is usually permanent but nonrecurring. There is no consumable part to it and it's therefor not of a income nature.

The third factor is intent and whether the capital is fixed or floating. This is the only area I can see as being more complex. It's likely that different cases will be ruled differently based on a person's intent. It's however much more likely to affect whether a profit is seen as income of a revenue nature vs of a capital one.
 

Swa

Honorary Master
Joined
May 4, 2012
Messages
27,999
In wont worry too much at this point. The only real way for SARS to go after crypto is to get the exchanges to issue the equivalent of a tax certificate or transaction history by getting someone like Luno to comply with with whatever SARS thinks they will require.

I would think that in the case with Luno where you also have a wallet with them, Luno will be able to extract reports that differentiate between normal wallet transactions and actual transactions on the bitcoin/crypto exchange. Afterall a company like Luno still needs to keep book of their own transactions much like a bank.

I would think that the easiest to go after is actual cashouts from crypto to ZAR. Any unrealized gains on crypto holdings at year end shouldnt be taxible.

By the way even the most common passive share portfolios or balanced fund or whatever is pretty darn difficult to calculate the actual capital gains was it not for the institution issuing a tax certificate. They are required to by the FSB and Sars. No reason why the same cannot be required and provided by Luno - bitcoin is purchased on a set date at a set price and exchanged or cashed out on another date at a certain price, much like shares. Or what am I missing?
You are correct but going through my Luno records there are literally thousands of them. Luno doesn't just list every order but every single buying and selling action as a transaction so you can have hundreds of them per order. It would be an enormous undertaking if not impossible as I've already stated to calculate individual buying and selling values for every transaction as Sars is looking for. That's what will ultimately make this endeavour fail and drag it before the courts.
 

HavocXphere

Honorary Master
Joined
Oct 19, 2007
Messages
33,156
The first time I heard it I was surprised that 1) barter transactions are taxable as they don't involve money and 2) that some transactions are exempt. I'm sure the actual law was referenced but unfortunately every search now for barter trading or taxation just brings up articles on crypto. Oh well so that's that I have to go with what I can get.
I see. Little point in arguing about whether a mechanism applies to crypto or not if you can't pinpoint the mechanism you mean frankly. So think best to end that discussion there.

You are correct but going through my Luno records there are literally thousands of them. Luno doesn't just list every order but every single buying and selling action as a transaction so you can have hundreds of them per order. It would be an enormous undertaking if not impossible as I've already stated to calculate individual buying and selling values for every transaction as Sars is looking for. That's what will ultimately make this endeavour fail and drag it before the courts.

It is not impossible.

Not exactly common knowledge I know, but its not hard to slap together a WA template in Excel. Then you drop your thousands of buy/sells, copy the formulas down a thousand rows and you're done. I assure you Excel can handle a couple thousand rows. (It'll choke at around a mill)

And yes it works for partial fills and fractional units because its just simple mathematics. It's one of the options SARS prescribes for shares (and trading inventory if memory server) - whether it applies to crypto...I'll leave that up to the reader cause kinda tired of that question

Here - I built one from memory to demonstrate just how not impossible this is. Well...plus I will actually need it to file my own taxes lol...

You could probably also do FIFO but can't be borthered to work out how to do that in excel

1620758878387.png
 
Top