The South African Revenue Service (SARS) has sent audit requests to taxpayers requesting them to disclose cryptocurrency trades and purchases.
This is according to Tax Consulting South Africa, which said it was recently approached by taxpayers who received this type of audit request.
The request included standard questions related to the taxpayer’s return, but also requested the following information:
- The purpose for which the taxpayers purchased cryptocurrency.
- A letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements.
“This would have been reasonably expected by the taxpayers, if they had made any disclosure of cryptocurrency-linked trading amounts in their returns, along with the rental amounts and certain investments that were indeed disclosed to SARS,” Tax Consulting South Africa said.
“However, in this case, we had explicitly confirmed that the taxpayers had not, to their knowledge, ever effected a cryptocurrency-related transaction.”
Walls are closing in on non-compliant cryptocurrency traders
The organisation noted that it is a criminal offence for a taxpayer to wilfully fail to submit data requested by SARS or to submit false information.
“It is no longer material whether the taxpayer concerned had justification for such non-disclosure or false statement made,” Tax Consulting SA said.
This means that a taxpayer who fails to correctly disclose their income from Bitcoin or other cryptocurrencies may be convicted for an offence and be liable to a fine or imprisonment for up to two years.
The organisation said this change to its audit request means SARS is actively cracking down on non-compliant cryptocurrency traders in South Africa.
“It is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits and / or losses,” Tax Consulting South Africa said.
“While further cryptocurrency regulation is certainly on its way, and with the international Common Reporting Standards now in full swing, audit requests are still a primary weapon in SARS’ arsenal and the walls are closing in on non-compliant cryptocurrency traders.”
All cryptocurrency transactions will have tax consequences
The organisation said that South Africans who have not disclosed cryptocurrency purchases or trades to SARS should immediately seek guidance to resolve this non-disclosure.
“From the outset, it should be known that all cryptocurrency transactions will bring tax consequences for a taxpayer,” the company said.
“A tax disclosure obligation does not only arise where a cash balance is withdrawn from a trading platform – all transactions that have been made (whether a transaction of cryptocurrency for money or cryptocurrency for other cryptocurrency) must be disclosed to SARS.”
Additionally, even if you have not purchased cryptocurrency in the past, you should proceed with caution when responding to an audit request.
“There is little doubt that SARS is pursuing non-compliant cryptocurrency traders, so it is best for these taxpayers to stay ahead of the curve and ensure that their tax affairs in order beforehand,” the company said.
“While this is certainly a first, it is certainly the kind of approach by SARS that taxpayers should expect moving forward.”