South Africans who trade in or own cryptocurrencies like bitcoin, ether, and dogecoin must declare this to SARS or face severe financial penalties.
While most governmental financial institutions in South Africa don’t regard cryptocurrencies as having any value, SARS considers cryptocurrencies as intangible assets, which means any income received or accrued from cryptocurrencies is taxable.
The revenue service recently provided further guidance on the correct tax treatment of crypto-assets and how these must be declared in your return.
Crypto Tax Consulting legal manager of cross-border taxation, Thomas Lobban, warns that although there have been no prosecutions for taxpayers found guilty of failing to disclose their cryptocurrency-related income yet, SARS has appointed specialists to deal with crypto assets.
“There is no legitimate way for crypto asset investors to remain “invisible” from a SARS perspective and, while many may still be in denial of this, SARS will keep on getting sharper,” Lobban stated.
“Even where you fail to disclose correctly now, the non-disclosure is permanent and will come back in a few years to catch up with the taxpayer.”
“Crypto asset holdings (not just gains and losses) must now be declared in your returns, and we will soon start seeing the wheels of justice turn quickly for those who are slow to the uptake.”
Lobban pointed out that one common misconception is that you don’t have to declare crypto assets if you have not made any trades.
“The 2020/21 tax return requires that you must make a specific disclosure under the ‘Statement of Local Assets and Liabilities’ section,” Lobban stated.
‘The consequence hereof is that all individuals who have acquired and held crypto assets during the tax year must disclose these holdings to SARS in their returns, regardless of whether any taxable events took place. This is easy to get wrong and taxpayers should be sure to tread carefully.”
“Where you do not make this disclosure, even negligently, this is now a criminal offence under the Tax Administration Act.”
TaxTim also emphasised that SARS has extensive collection powers which enable it to get information from many third parties who have to comply with the Income Tax Act.
If it finds you failed to disclose your cryptocurrency-related income, you can be slapped with a penalty and interest on late payment of any tax due.
The penalty typically ranges between 10-20% but can also be as high as 200% if SARS determines that you intentionally avoided paying tax.
SARS classifies cryptocurrency transactions into three categories:
- Cryptocurrency mining
- Purchasing goods and services with cryptocurrency
- Trading cryptocurrencies
Income derived from cryptocurrency can either be taxed as normal income tax or capital gains tax.
If you actively trade or speculate with cryptocurrencies you will have to declare your gains or losses under your normal income, which means you will be taxed at your marginal income tax rate.
For the 2021/2022 financial year, this can range between 18% and 45%, depending on your income tax bracket.
If, however, you purchased your cryptocurrency as a long-term investment and have not traded it in three years, any income accrued from it could be taxed as capital gains.
However, SARS says the determination of whether an accrual or receipt is revenue or capital in nature is tested under existing jurisprudence, so the three-year requirement is not the only consideration.
Without further guidance on this, it is best to clarify if your transaction qualifies as capital gains or losses directly with SARS.
The upside is that you are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade, SARS says.
This could include trading fees, transfer fees, and the electricity costs of running a mining rig.
The images below show where you should declare your cryptocurrency assets in the SARS Income Tax Return (ITR12), which can be submitted via e-filing.