Guide to Crypto Taxes in South Africa for 2024
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The South African Revenue Service (SARS) classifies cryptocurrencies as "assets of an intangible nature" and taxes crypto-to-crypto trades and payments for goods or services as barter transactions, with capital gains taxed at 18%. Income from mining, staking, and airdrops is taxed at 45%, but long-term holdings may qualify for the lower capital gains rate.
SARS has increased its scrutiny of crypto transactions and advises using the first in, first out (FIFO) accounting method for crypto tax reporting. Under South African tax laws, taxpayers may face penalties for inconsistencies in crypto transaction reporting.
The South African Revenue Service (SARS) considers and taxes cryptocurrencies such as Bitcoin to be "assets of an intangible nature" as opposed to currency or property. The agency has not released comprehensive guidance on crypto taxation, but has increased its scrutiny of crypto transactions, in line with its move to create a more robust regulatory framework for fintech.[1]
If you have capital gains from your investments, you may exclude the first R40,000. After that, 40% of any remaining profit is what you might have to pay tax on, especially if you're an individual taxpayer. To determine the amount you owe, take your total capital gains, subtract any losses and the R40,000 exclusion, and then multiply the result by 40%. This is the part that may be taxed. The top rate of Capital Gains Tax for natural persons in South Africa is 18%.
What is considered a taxable event?
In theory, SARS considers the disposal of cryptocurrency to be a taxable crypto capital gains event. However, there is not any guidance about how crypto transactions would be determined to be capital gains transactions. For equity shares, capital gains tax treatment kicks in after an asset has been held for more than 3 years.
South African law firm Webber Wentzel suggests that previous tax rulings about held Krugerrands may determine capital-deeming rules for cryptocurrency.[2]
Taxes on crypto-to-crypto trades
SARS views crypto-to-crypto trades as barter transactions and taxes any profit as capital gains (18%). Gains are calculated by subtracting the fiat value of coin A at the time of purchase from the fiat value of coin B at the time of the trade. Associated expenses may be claimed on taxes.
South African crypto to crypto trade example
Alicia bought 1 ETH for 11,000 ZAR.
Several years later, she trades 1 ETH for 15,000 XLM (fiat value of 60,000 ZAR).
Alicia would report a gain of (60,000 ZAR-11,000 ZAR=) 49,000 ZAR.
Taxes on crypto payments for goods or services
Crypto payments for goods or services are also considered barter transactions and are taxed as outlined in the section above.
Mining, forking, staking, and airdrop income
If kept in the revenue account, crypto mining, staking, airdrops, and hard fork proceeds are considered income and taxed at 45%. However, if the owner intends to hold the mining income long term, they would receive the capital gains tax rate (18%).
Webber Wentzel advises that staking income is unlikely to meet the criteria of interest income and therefore not included in the annual interest income exemption amount.
Accounting methods
The South African tax agency also clarifies questions on which crypto accounting methods are acceptable. The crypto “purchase price is determined on the date of the earlier of receipt and accrual. Cryptocurrency is not regarded as a share and therefore SARS does not treat it as the average for the year.”
In other words, you should not use the average cost or last in, first out (LIFO) accounting method. To be conservative, a first in, first out (FIFO) approach is best, although specific identification is not excluded by the tax rules.
SARS crypto tax audits
In early 2020, SARS was quoted by a series of South African media sources as expanding their cryptocurrency audit and detection services. They have publicly listed employment opportunities specifically geared towards cryptocurrency tracking.
In their 2018 tax guidance, SARS commented that it has been“granted a wide range of collection powers in terms of the Income Tax Act” in regards to cryptocurrency.[3]
SARS clarifies in its guidelines that “taxpayers may be subject to penalties [for having treated a cryptocurrency transaction in a manner that is inconsistent with South African tax laws]... See Chapter 16, and section 223 specifically, of the Tax Administration Act, 2011.”
Learn more about crypto taxes in other countries in our crypto tax guide.
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Crypto taxes in South Africa FAQs
Here are answers to frequently asked questions about South African crypto taxes.
What is the SARS classification of cryptocurrencies, and how does it impact their taxation?
SARS considers cryptocurrencies, including Bitcoin, "assets of an intangible nature" rather than currency or property. This classification influences the taxation of crypto transactions, although comprehensive guidance on crypto taxation is yet to be released. SARS has increased scrutiny of crypto transactions as part of its effort to establish a more robust regulatory framework for fintech.
What constitutes a taxable event according to SARS, and how are capital gains from crypto transactions determined?
SARS considers the disposal of cryptocurrency as a taxable event, specifically a taxable crypto capital gains event. However, there is a lack of specific guidance on how crypto transactions would be categorized as capital gains. For equity shares, capital gains tax treatment typically applies after an asset has been held for more than 3 years. South African law firm Webber Wentzel suggests that previous tax rulings on held Krugerrands may influence capital-deeming rules for cryptocurrency.
How does SARS treat various forms of cryptocurrency transactions?
SARS views crypto-to-crypto trades and payments for goods or services as barter transactions, subjecting any resulting profit to capital gains tax at 18%. Income from crypto mining, staking, airdrops, and hard fork proceeds is considered income and taxed at 45%, but if the owner intends to hold the mining income long term, it may be eligible for the capital gains tax rate of 18%.
SARS also provides guidance on acceptable crypto accounting methods, recommending a first in, first out (FIFO) approach. The agency has expanded its cryptocurrency audit and detection services, warning taxpayers of potential penalties for inconsistent treatment of crypto transactions with South African tax laws.
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References
Last reviewed by Tynisa (Ty) Gaines,EA on August 21, 2024 · Sources