SARS crypto tax

Worried about Crypto Tax? Trying to figure out what you have to pay ?

Is crypto tax a real thing? The South African Revenue Service (SARS) – the equivalent of the United States of America’s Internal Revenue Service (IRS) – says digital assets are taxable. In particular they say that existing South African tax law cover cryptocurrencies too.

Normal income tax rules apply to cryptocurrencies. SARS expects taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

The taxpayer has full responsibility to declare all cryptocurrency-related taxable income. Consequently a taxpayer will have to do this in the relevant tax year in which they accrue or receive it. The warning is stark. Any non-compliance could result in the imposition of penalties and interest.

Earlier this year a number of cryptocurrency experts presented to SARS in an effort to bring SARS crypto tax and other policy-making institutions like the South African Reserve Bank (SARB) up to speed.

SARS Crypto Tax is Based on Normal Income Tax Principles

SARS states the following:

“The South African Revenue Service will categorise cryptocurrency income as either revenue or capital in nature. As a result proceeds which are of a revenue nature will also carry more stringent taxes.

SARS will regard the proceeds of a sale as income when you derive it through a scheme of profit-making. They will regard it as capital if the sale was a mere realisation or change of investment. The taxpayers have to prove the digital asset is held on a capital account. Furthermore that any profit on the resale is of a capital nature.”

A presentation by Patricia Williams and Rob Hare from Bowmans explained the income tax and Capital Gains Tax (CGT) implications as shown below:

Here is a nice presentation from Bowmans Law, summarizing the SARS crypto tax position.

SARS crypto tax explained:

SARS published a crypto tax document which the title “Tax Implications of Cryptocurrencies”. It contains the following insightful explanation.

Transactions or speculation in cryptocurrency is subject to the general principles of South African tax law and taxed accordingly. Depending on the facts and circumstances of a case, capital gains tax or normal tax may apply. The definition of “gross income” addresses an “amount in cash or otherwise”. The fact that cryptocurrency is not legal tender (i.e. cash/money) does not exclude it from being included in gross income as “otherwise”. The same tax principles for dealing with barter transactions must be followed as cryptocurrency is an asset (i.e. the otherwise portion of the gross income definition) being exchanged for goods or services. The second requirement of the gross income definition is that the amount received or accrued must be in case or otherwise.

What Does It Cover?

This will include anything which has an ascertainable value in money or money’s worth. If it is something which is not money’s worth or cannot be turned into money, it is not income. As long as what is received or accrued has an ascertainable money value, the property may be of any nature, corporeal or incorporeal e.g. motor car, a suit or shares.

Barter or exchange transactions will, therefore, give rise to gross income as long as the asset received is capable of being valued in money terms and of being converted into money. Should an asset be exchanged for another asset, the value of the new asset received, constitutes the amount received. Taxpayers must include in their gross income, the FIAT value, of any income they receive in non monetary form.

Crypto Tax Principle

The principle has been established that this value will normally be the market value of the asset on the date the asset was received. To treat the asset received as capital in nature (i.e. to exclude it from gross income, but to incorporate it into taxable income after applying the provisions of the eighth schedule) instead of revenue in nature, the onus falls onto the taxpayer to prove that the gains made, were not made in the course of running a business or a profit-making scheme.

Where goods or services are supplied by a vendor in exchange for other goods or services (barter transactions), the vendor will have to account for output tax in respect of the open market value of the goods or services that have been received, as it constitutes consideration for that supply.

There is no getting away from completing your ITR12 form. You have to declare your cryptocurrency income whether it be capital gains tax or normal tax. You will need to declare such taxable income in the source code or tax return container field provided.

Does Everyone Agree?

Not everyone is happy or agrees with the position SARS and other taxation authorities around the word are taking. Some believe cryptocurrency such as bitcoin and bitcoin cash to be “money”. It is reasonable to argue then that is should not be subject to Capital Gains, Income or value added taxes.

SARS crypto tax impacts all roleplayers including investors, traders, miners, consumers and merchants. Before calculating huge windfalls from trading and HODling make sure you have factored in the expected SARS crypto tax.

Taxation is the best solution we have to fund the needs of a developed and civilised society. This I will not argue with. I do not however think we have got it right with taxation relating to something like bitcoin. We cannot simply try and apply the rules written for the FIAT world to cryptocurrency such as bitcoin. We need to think outside the box. It starts with accepting that we cannot make rules for something which we have no control and no rights over. Cryptocurrencies require their own set of solutions in terms of regulation and taxation – Gareth Grobler, iCE3.com

As the author of Gone with the Wind, Margaret Mitchell says about tax: “Death, taxes and childbirth! There’s never any convenient time for any of them.”

In The End

We all have to make decisions everyday with our money. Government should be a mechanism to create a better society and ensure fairness for all. Cryptocurrency such as Bitcoin has levelled the playing field when it come to creating money. Cryptocurrency such as bitcoin is a problem for Central banks and governments who do not solve social problems through responsible monetary policy. It highlights the issue of Government Bailouts and raises concern over “too big to fail” corporate entities.

What are your thoughts regarding the taxation of cryptocurrency? Let us know in the comments below.

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