While the use and trade of cryptocurrency remains largely unregulated, South African crypto miners cannot avoid paying tax on their earnings.
SARS recently detailed its stance on cryptocurrency owners, stating that the digital cash is subject to normal income tax rules.
Taxpayers who own cryptocurrency are required to declare profits and losses as part of their taxable income.
SARS regards cryptocurrencies as intangible assets rather than as a currency, and said taxpayers can claim expenses associated with cryptocurrency accruals or receipts.
If you are a cryptocurrency miner, this means you will need to declare and pay tax on your profits for the year.
However, calculating the value of cryptocurrency can be difficult due to its volatility.
MyBroadband spoke to Ettiene Retief, Chairman of the National Tax and SARS Committee at SAIPA, about the taxation of Bitcoin and Ethereum miners in South Africa.
Retief said the value of cryptocurrency is determined when it is exchanged for cash or other assets, and its value will determine the tax due.
“When the miner receives new coins as reward, the newly-acquired cryptocurrency is held as trading stock until it is realised through an exchange for cash, or as a barter transaction for goods or services,” said Retief.
“Generally, either the realised cash value or market value will be used to determine taxable income.”
This means you will need to calculate the tax due on your mining earnings depending on how much you sold your cryptocurrency for.
The taxable value of the cryptocurrency in your mining wallet is unclear until it is exchanged for a more tangible asset.
While miners may doubt the enforcement of tax rules regarding profits from crypto mining, SARS is working on tracking blockchain transactions and using off-chain data to identify user cryptocurrency wallet balances.
Retief warned against dodging tax on crypto mining earnings, as the anonymity provided by blockchain technology only extends so far.
“While the record of the cryptocurrency may be difficult to track or assign to a taxpayer, there are other parts to a transaction that could be traced,” he said.
“Conversion to cash, using cash to purchase crypto, exchange for goods or services… even the foreign goods purchased and delivered in SA will be tracked via customs on the import of the goods.”
“Let’s not forget that purchasing and holding physical foreign assets using your cryptocurrency may lead to a contravention of exchange control.”
Like any other source of income, profits earned from cryptocurrency mining are subject to tax, despite being paid out in decentralised assets.
The responsibility to pay tax on cryptocurrency earnings lies with the taxpayer, and failure to do so could result in interest and penalties.