Crypto earnings & Capital Gains Tax

Swa

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The calculation needed to arrive at tax has nothing to do with opening and closing balance though.

It's always disposal price less cost...calculated on individual transactions added up.

It's like if you move house halfway through the year...the calc isn't I had 1 house at start of the year, I had 1 house at end of year. Thus no tax. It just doesn't work that way...not even close. Not in stocks. Not in houses. Not in crypto
Not really. If you do day trading in currencies opening and closing balances are exactly one of the official ways to calculate it, assuming you did not do any withdrawals. The individual transactions are just supportive of your activities and not actually used to calculate it. And it's actually total disposal price less total cost. Sars should get with the program here and issue formal guidelines tot his effect with crypto as well.

My biggest problem that I discovered now was that all of my crypto will be taxed as income and not capital gains as the trading interval is not more than 3 years. That means I'm gonna be paying 45% tax!! That's really depressing.

I'm still going to see a tax consultant and see if there is something we can do about this mess. Really depressing situation
Is this official from Sars or not? You can always declare it as CG and see what happens. The law has always been about intent and not duration.
 

Swa

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To throw another spanner in the works, Binance only shows the transaction values but my balance is 0.1% less in fees. :rolleyes:
 

HavocXphere

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If you do day trading
That part is kinda important though. Cause if not then the method of calculation you describe is not allowed.

idk could go either way I guess for most & depends on intent as you say but I'd be surprised if SARS classifies the average person toying with crypto as having trading stock/revenue in nature.

Sars should get with the program here and issue formal guidelines
Yip. Was looking at the case law for the above and kinda annoyed that the sars memo says just use existing rules and case law for this there is more than enough. Except it doesn't really work. Crypto has no dividends. Case law favs like fruit & tree don't work at all. They kinda just washed their hands of it.

Worth noting that other tax authorities have landed on the capital nature side of the fence though. e.g. UK
Only in exceptional circumstances would HMRC expect individuals to buy and sell exchange tokens with such frequency, level of organisation and sophistication that the activity amounts to a financial trade in itself. If the taxpayer’s activity is considered to be trading then Income Tax will take priority over Capital Gains Tax and will apply to profits (or losses).

I guess one of you guys will just have to get your ass sued to sort this out and make new case law :p

The law has always been about intent and not duration.

He's referencing section 9C I think- where duration does kinda override intent. That's for equity shares though so who knows if applicable to crypto...
 

Swa

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That part is kinda important though. Cause if not then the method of calculation you describe is not allowed.

idk could go either way I guess for most & depends on intent as you say but I'd be surprised if SARS classifies the average person toying with crypto as having trading stock/revenue in nature.
That's the thing, day trading does not imply over the course of just a day. Day trading typically implies hundreds or thousands of transactions. It's the nature of the consolidation that it becomes impossible to calculate what was made on each individual transaction because there's always partial buys or sells. That definition fits crypto trading to a tee. I see no reason why this should not be possible just because Sars views it as an asset rather than a currency.

Like usual it will take a number of cases to emerge where Sars realises they are in over their heads and then an amnesty followed by proper guidelines.

He's referencing section 9C I think- where duration does kinda override intent. That's for equity shares though so who knows if applicable to crypto...
Not sure what he's referencing but the 3 years is only a guideline from Sars. It's not a law or even a policy. The overriding factor as stipulated in law is intend and not duration. It's not like in the States where a year or longer is capital gains and under a year is income regardless of intent. I'd much rather have a policy or law like that.
 

HavocXphere

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[Slight tangent on FX stuff so most of you might want to ignore this post to avoid confusion re crypto]

Not sure what he's referencing but the 3 years is only a guideline from Sars. It's not a law or even a policy.
I gave you the section number and you even quoted it. It's very much a law not a guideline ;) As I said it refers to shares specifically though...

If you do day trading in currencies opening and closing balances are exactly one of the official ways to calculate it,
Currencies (and FX options / forwards) have their own sections and different rules from assets. Currencies fall under s24I and FX options and forwards under 24L. SARS has been quite clear on crypto not being considered a currency. Its the one thing they did mercifully actually spell out.

assuming you did not do any withdrawals
ah right. That thing - yeah I get where you're going with this.

Kinda...what you're doing with FX there is more like a commonly used shortcut that happens to get you to the right answer *for currencies* despite it not being what's in the income tax act at all. It's easier to see if the two methods are side by side:

1618433617400.png

If you actually go read the income tax section you'll see even for FX it does actually talk about individual transactions (S24I - talks about "exchange item" with acqusition rate, disposal rate, transaction date etc). I've never see that shortcut spelled out by SARS in any official way as you say though so if you have a link please share.

Basically in the one you're tracking an asset's cost and rolling it forward continously while the other is just a string of mark to market calcs. Notice also the opening/closing of what...one requires whole account, other is just the inventory. For trading stock opening and closing is at cost price, not market value so would end up with the wrong answer if you try the FX trick on crypto. FX crystalizes at year end (cause that's was s24I requires) while shares/crypt/widgets would crystalize on sale (s1 GI) which may or may not be during the year...and thus needs to be tracked individually.

As I said I don't think either is appropriate for the average oke here though. Most would be doing CGT route via FIFO or WA method I think. But that's circumstance & intent dependent.
 

Syphonx

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So it seems claiming CGT and seeing that SARS says is an option.

How does this scenario play out: Bought in 2017 and kept the same coin until early 2021 (over 3 years). Then trade the coin for another which is held for another year/multiple months and then withdrawn. Does that reset the long term hold (3 years) and make you pay tax as normal income tax, or would that still qualify for CGT?
 

Sensorei

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So it seems claiming CGT and seeing that SARS says is an option.

How does this scenario play out: Bought in 2017 and kept the same coin until early 2021 (over 3 years). Then trade the coin for another which is held for another year/multiple months and then withdrawn. Does that reset the long term hold (3 years) and make you pay tax as normal income tax, or would that still qualify for CGT?
That's too complex for 9/10 SARS officials. SARS aren't even sure what to do.
 
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Swa

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I gave you the section number and you even quoted it. It's very much a law not a guideline ;) As I said it refers to shares specifically though...
I'm not sure what you're referring to here. From what I know there has never been a law referencing 3 years. The 3 years is simply Sars' view but is not set in stone as the law references intent. More specifically it applies to all assets as well, not just shares.

This could have been addressed when the CGT act was drafted but for some odd reason it wasn't and was still left up to discretion.

Currencies (and FX options / forwards) have their own sections and different rules from assets. Currencies fall under s24I and FX options and forwards under 24L. SARS has been quite clear on crypto not being considered a currency. Its the one thing they did mercifully actually spell out.
From what I understand it's more about the nature of the transactions where it becomes impossible to assign individual values because of fractional trades. It would apply equally to assets where the profits/losses quite simply can't be calculated in the formal manner.

ah right. That thing - yeah I get where you're going with this.

Kinda...what you're doing with FX there is more like a commonly used shortcut that happens to get you to the right answer *for currencies* despite it not being what's in the income tax act at all. It's easier to see if the two methods are side by side:

View attachment 1052437

If you actually go read the income tax section you'll see even for FX it does actually talk about individual transactions (S24I - talks about "exchange item" with acqusition rate, disposal rate, transaction date etc). I've never see that shortcut spelled out by SARS in any official way as you say though so if you have a link please share.

Basically in the one you're tracking an asset's cost and rolling it forward continously while the other is just a string of mark to market calcs. Notice also the opening/closing of what...one requires whole account, other is just the inventory. For trading stock opening and closing is at cost price, not market value so would end up with the wrong answer if you try the FX trick on crypto. FX crystalizes at year end (cause that's was s24I requires) while shares/crypt/widgets would crystalize on sale (s1 GI) which may or may not be during the year...and thus needs to be tracked individually.
Sars allows the shortcut precisely because it does yield the correct answer. On principle if you count up all transactions it should bring you to the same opening and closing balances as there's no way it could not. Sorry I don't have a link to this.

The issue is if you do multiple buys and sell off fractions how do you determine the value of any individual unit or fraction? This is typically not done with assets though I don't see a reason why it can't be. CC's are more like FX in this regard than stock trading.

As I said I don't think either is appropriate for the average oke here though. Most would be doing CGT route via FIFO or WA method I think. But that's circumstance & intent dependent.
Precisely why new official guidelines are needed. There's no reason why the old methods that served us should continue to serve us in the future. CC's are more like a blend between assets and currencies and people should be allowed to use whichever method works best between assets, currencies and capital.
 

HavocXphere

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I'm not sure what you're referring to here. From what I know there has never been a law referencing 3 years. The 3 years is simply Sars' view but is not set in stone as the law references intent.
9C income tax act. Please just read it - here is a link.

Sars allows the [FX] shortcut [for FX] precisely because it does yield the correct answer [for FX].
FTFY. Correct answer for currencies. Wrong answer for other things like shares (and crypto).

It's a bit like SARS has different rules and calculations for interest income and dividend income. And if you attempt to use dividend income rules and calculations for your interest SARS will not be impressed because it won't be tax compliant and will result in the wrong amount of tax paid for the year.

We're not talking about different mathematical ways of arriving at the same number...the actual tax payable is different (though mostly timing difference across years here).

Easiest way of illustrating that they are actually really different is perhaps looking what SARS asks you use as closing balance:

FX closing balance: "the ruling exchange rate at which such exchange item is translated at the end of that year of assessment;" [aka spot/market/current rate] (S24I)

Trading stock closing balance: "in the case of trading stock [...] the cost price" [aka historic price] (s22(1))

So for trading stock that's potentially using a number from when you purchased the thing in 2010, while for FX you're using spot at tax year end. Very different result...especially for stuff moving fast like crypto.

how do you determine the value of any individual unit or fraction?
Same way the trading app on your cellphone does it when you buy & sell often at different prices. Cost is (usually) calculated via weighted average method. Same way accounting systems do it when buying & selling inventory at different price points during the year yet hold it in one big pile of inventory. Fractions - it's just moving the decimal point. Addition, subtraction, multiplication and division still work just fine.
CC's are more like a blend between assets and currencies and people should be allowed to use whichever method works best between assets, currencies and capital.
I wish. Unfortunately SARS picks something, codifies it into law and then its up to people to know & follow that. One of the few things they've spelled out is that crypto is not currency. Hence one of the few things we know with certainty about crypto is that we can't use the currency specific guidance for it - there really isn't any room for interpretation/judgement on that.
 

Speedster

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From what I read 9c says after 3 years is must be capital. It doesn't say anything about less than 3 years. Or am I missing that bit?
 
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harties

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I’m having difficulty wrapping around how to declare taxes on this. Say I bought majority of it in BTC over the past 5 years and hodl most of it but traded 20-30% of my stack in alts and would like to cash out my alt profits? And if later I would like to cash out my BTC - do you need to declare the unit of btc you bought it at ? because now I have 70-80% of my btc
 

HavocXphere

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From what I read 9c says after 3 years is must be capital. It doesn't say anything about less than 3 years. Or am I missing that bit?
Correct. Below 3 years you're in the murky intent territory....which could go either way depending on circumstances. You'd broadly copy the thinking applied to shares, but for crypto it doesn't really work properly so its kinda unchartered territory.

As I said previously though - the s9C section specifically references equity shares. There is no reason to believe it's applicable to crypto. However if you're holding for 3 years then you won't have trouble convincing SARS that you're a legitimate long term investors for capital appreciation...so kinda same thing either way.

Basically the tax situation favours the hodlers. If you're doing stuff that looks like active trading then things could be less fun. If you're doing both split it...the cleaner that split the better. e.g. for shares you might use one broker for the hodling and one for the active trading. That makes it an easier sell to tell SARS no look they're really two different things and properly separate.

This SARS doc explains a lot of the thinking you should be applying. Talks about shares not crypto, but it's broadly speaking the best proxy we have right now


(A version of that was on SARS site last week, but SARS appears to have broken their site somewhere in the past 48 hours lol)
 

Swa

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From what I read 9c says after 3 years is must be capital. It doesn't say anything about less than 3 years. Or am I missing that bit?
Yes my understanding as well. Wasn't aware of that but the CGT act still deems intent as the overriding factor for transactions under 3 years.

FTFY. Correct answer for currencies. Wrong answer for other things like shares (and crypto).

It's a bit like SARS has different rules and calculations for interest income and dividend income. And if you attempt to use dividend income rules and calculations for your interest SARS will not be impressed because it won't be tax compliant and will result in the wrong amount of tax paid for the year.

We're not talking about different mathematical ways of arriving at the same number...the actual tax payable is different (though mostly timing difference across years here).

Easiest way of illustrating that they are actually really different is perhaps looking what SARS asks you use as closing balance:

FX closing balance: "the ruling exchange rate at which such exchange item is translated at the end of that year of assessment;" [aka spot/market/current rate] (S24I)

Trading stock closing balance: "in the case of trading stock [...] the cost price" [aka historic price] (s22(1))

So for trading stock that's potentially using a number from when you purchased the thing in 2010, while for FX you're using spot at tax year end. Very different result...especially for stuff moving fast like crypto.
And that is precisely the problem because even with shares there are cases where it's impossible to say what the true purchase price is and it would be a guess at most with some methods even yielding negative numbers or ones above the selling price.

I think where the confusion is is in thinking that it's simply a function of closing and opening balances at midnight. It's not actually. Even with forex you can't just put everything into a transaction in order not to pay tax. It's actually last traded and first traded balances for the year. So in that respect it works exactly the same as shares where it's selling price - buying price.

It is actually just a different calculation for where individual values are deemed unfeasible or impractical to use. The reason you don't see it used in equities is because they are typically not disposed of in transactions of this nature. In both cases Sars only asks for one value reported. Both equities and forex you still need the supporting transactions to arrive at the balance, it's just an easier calculation to do.

Same way the trading app on your cellphone does it when you buy & sell often at different prices. Cost is (usually) calculated via weighted average method. Same way accounting systems do it when buying & selling inventory at different price points during the year yet hold it in one big pile of inventory. Fractions - it's just moving the decimal point. Addition, subtraction, multiplication and division still work just fine.

I wish. Unfortunately SARS picks something, codifies it into law and then its up to people to know & follow that. One of the few things they've spelled out is that crypto is not currency. Hence one of the few things we know with certainty about crypto is that we can't use the currency specific guidance for it - there really isn't any room for interpretation/judgement on that.
I didn't say there is. I think the issue here is that you're thinking the calculation is somehow supported by Sars. It's not which is why you won't find a reference to it. There isn't officially any calculation supported by Sars because calculations are just ways of coming to the end result based on the data. This is just an easier method to arrive at the same result rather than counting individual transactions.

You still have the individual transactions to support it and if Sars disagrees then let them try and see if they can arrive at a different one and support it.
 

HavocXphere

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There isn't officially any calculation supported by Sars because calculations are just ways of coming to the end result based on the data.
Which is exactly why I didn't give you calculations. I gave you income tax act references....proving the laws for shares(crypto) and currency are functionally actually different and require a different calculation.

You don't get to apply salary income rules to interest. You don't get to apply interest income rules to dividends. And you don't get apply currency rules to shares or crypto.

...it's not an issue of whether it works mathematically. You're just straight up looking at the wrong law and doing the wrong thing mathematically as a result.
 

L-Dog

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It covers everything except the one part that actually matters.

Clarity on how to interpret revenue/capital income in the crypto context.

Both parties subject to income tax or CGT on value of asset received, depending on intention and facts (i.e. trading vs. investing)

Yip how the hell are you suppose to prove intention ?
 

Snyper564

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Both parties subject to income tax or CGT on value of asset received, depending on intention and facts (i.e. trading vs. investing)

Yip how the hell are you suppose to prove intention ?
There are court cases that deal with all of this.

Go Google Sars capital vs revenue and fhe various tests including intention.

Most instances will most likely be revenue. Someone that bought doge now sold a week or two later that's revenue.

Someone that bought btc years ago and cashes out now that's capital.

If you are dealing with significant values seek proper tax advice.

Sars won't challenge it if you select revenue just be ready to prove capital if you go down this route.
 
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