Crypto Taxes in South Africa
Cryptocurrency is taxed in South Africa: learn the key considerations for filing your crypto taxes if you are a resident of South Africa.
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This article is part of TokenTax's Cryptocurrency Tax Guide.
Cryptocurrency is taxed in South Africa. In this guide, we'll go over how exactly your crypto transactions are taxed, and on which forms you report your cryptocurrency taxes.
The South African Revenue Service (SARS) considers cryptocurrencies such as Bitcoin to be “assets of an intangible nature,” as opposed to currency or property.
Income “received or accrued” from cryptocurrency falls under the definition of “gross income” according to the tax act. However, under certain circumstances, gains may be considered capital under the Eighth Schedule to the tax act.
In both cases, the tax rules for cryptocurrency allow for deducting costs. For example, in the case of income, taxpayers may claim expenses on their taxes. In the case of Capital Gains Taxes (CGTs), the cost of purchasing the crypto is considered for determining the taxable amount. Thus, you only pay capital gains on any appreciation your crypto has made.
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 guidelines, SARS also commented regarding tracing Bitcoin and auditing past years that they are “granted a wide range of collection powers in terms of the Income Tax Act.”
While it is unclear whether the newly-improved SARS tracking capabilities will have an impact on crypto audits for the 2019 tax reporting year, it is best to err on the side of caution.
SARS clarifies in its 2018 guidelines that “[t]axpayers 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.”
This guide is intended to give you an overview of South African crypto taxes, but please do reach out to our team with any questions about your unique tax situation.
In the SARS 2018 crypto guidelines, the agency specifies that “[i]nvestors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions.”
SARS categorizes these transactions as “normal cash transactions” to be reported on the Provisional Tax return (IRP6). For tax purposes, short term trading activity with the intention of earning daily wages is deemed income, while long term investments (typically over three years) are subject to capital gains taxes.
In order to document your transactions, SARS guidance states that “[c]onventional receipts and /or invoices will suffice.” SARS does not require more scrutiny for crypto transactions than for any other normal payment or receipt activity.
The South African tax agency also clarifies questions on which 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 approach is best, although specific identification is not excluded by the tax rules
Dissimilar from the tax treatment of crypto investments, the 2018 SARS guidelines specify that “[g]oods or services can be exchanged for cryptocurrencies.
This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.” In other words, this crypto is taxed as income to be reported on the ITR12 form.
SARS tax treatment of crypto mining activity falls under both normal cash and barter transaction rules. Crypto miners are first taxed at the time they acquire the cryptocurrency in line with income taxes.
According to SARS guidelines, “[a] cryptocurrency can be acquired through so called ‘mining.’ Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms.
By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger… This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency.”
While the initial receipt of cryptocurrency through mining is treated as income for tax purposes, SARS treats the subsequent disposition of the cryptocurrency under a different set of tax rules.
Their 2018 guidelines state that “until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realized through either a normal cash transaction...or a barter transaction.”
These are the same tax regulations which it designates for crypto investments and transactions in exchange for goods and services, as detailed in the respective sections.