Next month, when you file your tax return for the fiscal year 2020/21, you’ll need to be ready to disclose your bitcoin or other crypto currency transactions to Sars and pay tax on them if necessary.
Using cryptography as its underlying technology, a crypto asset is a digital representation of value that is not issued by a central bank and is instead traded, transferred, and stored electronically by individuals and organizations for various purposes including but not limited to payment, investment, and utility.The phrase “cryptocurrency” was substituted with “crypto asset” in the Explanatory Memorandum on the Taxation Laws Amendment Bill issued on 20 January 2021 because of the intended adoption of a unified definition of crypto assets within the South African regulatory framework. Yes, taxpayers should report any gains or losses from cryptocurrency investments as part of their yearly income tax filings.
All taxable income attributable to crypto assets must be reported by taxpayers in the tax year in which it is earned or received Interest and fines may be incurred if this is not done.
Cryptocurrency transaction income is subject to “gross income” taxation under the usual income tax regulations. If, however, the gains meet the criteria laid out in the Act’s Eighth Schedule, they will be subject to Capital Gains Tax (CGT) rather than ordinary income. Existing case law is applied to determine whether or not a given accrual or receipt is of a revenue or capital nature (of which there is no shortage).
Gains or losses on crypto assets can be deducted by taxpayers, so long as the costs were spent in the course of doing business.
If the transaction fits the CGT paradigm, an adjustment to the base cost can be applied as well.
There are three main scenarios with regards to gains or losses from crypto assets, and each one might have different tax ramifications:
The term “mining” refers to the process by which crypto assets are obtained. In order to mine, complex computer algorithms must be solved in order to verify transactions in a distributed ledger maintained by computers.
Crypto assets exchanges, which are effectively markets for crypto assets, allow investors to trade fiat currency for crypto assets (or vice versa) or conduct other types of private transactions.
Cryptocurrencies can be used as payment or bartering tools for goods and services.
A barter exchange has taken place here. For this reason, standard guidelines for bartering should be followed.
See a sample Income Tax Return (ITR12) form for the upcoming 2020/21 tax year, as well as screenshots showing how to report cryptocurrency holdings, below.
In 2018, Sars issued the following statement: “Sars will apply standard income tax rules to cryptocurrencies and will require impacted taxpayers to record cryptocurrency gains or losses as part of taxable income.”
Taxpayers are responsible for reporting all taxable income associated with cryptocurrencies in the tax year in which the money is earned or received. Should you fail to do so, you may be subject to fines and interest.
The bitcoin market is viewed as an asset in Sars rather than a currency. In reality, “cryptoassets” has replaced “cryptocurrencies” as the preferred term of reference by both Sars and the National Treasury.
However, a cryptoasset is characterized as a financial instrument, distinct from traditional assets like stocks and bonds.