Declare your cryptocurrency tax dues on your tax return, says SARS
Cryptocurrency tax worries ? If you are an South African who owns cryptocurrencies such as Bitcoin, Litecoin, Ethereum. You need to declare gains or losses on your tax returns, according to the SA Revenue Service.
Cryptocurrency Tax Return
Cryptocurrency tax is a hot topic in South Africa. The South African Revenue Service (SARS) chimed in saying they will continue to apply normal income tax rules to cryptocurrencies. Furthermore they will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.
SARS said: “The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”
Calls for SARS to provide direction as to how to treat cryptocurrencies for tax purposes are due to increased attentiveness and speculation regarding the future of cryptocurrencies.
What do I declare?
Cryptocurrency (typified by Bitcoin) is an internet-based digital currency that exists almost wholly in the virtual realm. A growing number of proponents support its use as an alternative currency that can pay for goods and services much like conventional currencies.
How do SARS define cryptocurrency?
In South Africa, there is no definition for the word “currency” in the Income Tax Act (the Act). In South African we do not widely accept or use Cryptocurrencies as a medium of exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). As a result, SARS regard cryptocurrencies as assets of an intangible nature.
Whilst not constituting cash, we can value cryptocurrencies to ascertain a FIAT amount received or accrued as envisaged in the definition of “gross income” in the Act.
Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”. Yet such gains may alternatively be regarded as capital in nature. As spelt out in the Eighth Schedule to the Act for taxation under the CGT example.
In South Africa we determine whether an accrual or receipt is revenue or capital in nature, under existing jurisprudence (of which there is no shortage).
Can I claim expenses?
Taxpayers can claim expenses associated with cryptocurrency tax attracting accruals or receipts. Moreover such expenditure must be directly resulting from the production of the taxpayer’s income and for the purposes of trading. You can also make base cost adjustments if it falls within the CGT paradigm.
According to SARS we categorise gains or losses in relation to cryptocurrencies broadly with reference to three types of scenarios. Each of which consequently gives rise to distinct tax consequences:
(i) First of all, you can acquire cryptocurrency through “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger. They achieve this through the solving of complex computer algorithms. By verifying these transactions the “miner” receives a reward. This reward is in the form of ownership of new coins which are part of the ledger.
This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This probably means that until you SELL or exchange the cryptocurrency for cash, it is trading stock. Moreover you can subsequently realise it through either a normal cash transaction (as described in (ii) or a barter transaction as described in (iii) below.
(ii) Furthermore Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions.
(iii) Finally, you can exchange goods or services for cryptocurrencies. This transaction is as a barter transaction. Therefore the normal barter transaction rules apply.
Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).
Value-Added Tax (VAT)
The 2018 annual budget review indicates a review of the VAT treatment of cryptocurrencies. Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies.
For more information, please see the frequently asked questions (FAQs).