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How To Pay Tax On Cryptocurrency In South Africa
Blockchain technology has started to gain traction in recent years with the introduction of various cryptocurrencies. Crypto offers a brand new financial instrument to accept payment or as a speculative trading asset where you can earn value through buying and selling these coins.
South African Rands following in and out of cryptocurrency has garnered a lot of attention. Now the South African taxman has started to set its sites on getting into the sector too. SARS now wants to get a piece of what you earn from cryptocurrency.
Cryptocurrency is not legal tender in South Africa
SARS confirmed that it sees cryptocurrencies as intangible assets. Any income received or accrued from cryptocurrencies are taxable. The income can either be of a revenue or capital nature which we will tackle below.
Given the SARS preference to classify cryptocurrencies as intangible assets, and thus similar to shares in a company, a plethora of tax litigation may ensue to solve disputes about whether a cryptocurrency investment was held on capital or revenue account and will be up to the individual to select the option that works for them.
For a more detailed explanation of how SARS treats cryptocurrency check out their official release here
In summary, SARS states that cryptocurrencies are not to be treated as currency for tax purposes and that the normal tax principles should apply to cryptocurrencies as if they are intangible assets.
How to determine your cryptocurrency tax obligation
Before you can declare your cryptocurrency to SARS you need to determine under which tax laws it will fall under, either gross income or capital gains.
To better understand which one fits your situation, ask yourself the following questions.
|Ask:||Gross Income:||Capital Gains:|
|Did you acquire cryptocurrency with the intention to actively trade with it?||Yes||No|
|Was the cryptocurrency acquired as a long-term investment?||No||Yes|
|Did you keep the cryptocurrency for a few years (generally 3 years)?||No||Yes|
Cryptocurrency income tax
If you earn your cryptocurrency as payment for goods or services rendered or you're a day trader making money on trading pairs as part of your monthly income you may want to look at filing as gross income tax.
|Income received from trading with cryptocurrency.||All expenses associated with the above income. Example: Cost of sales and subscription fees.||Taxed according to normal tax tables, depending on your tax bracket.||Set-off against other trading income/ Tip: Check if any ring-fencing principles apply|
Cryptocurrency capital gains tax
If you've bought a cryptocurrency and held it for an extended period of time before cashing it out back to fiat then you may be liable for capital gains tax.
|Proceeds from selling cryptocurrency.||The base cost of the cryptocurrency. Example: Purchase price and broker fees.||Exclude R40,000 of the gain and include 40% of the remainder in your taxable income.||Utilise the capital loss against other capital gains from other assets.|
At the moment SARS will not require VAT registration from a vendor for purposes of the supply of cryptocurrencies but this could be subject to change with a further policy review in the future.
What happens if I don't declare my cryptocurrency income?
Once cryptocurrency is traded locally into Rands (ZAR) it now becomes legal tender and is subject to tax. It now the responsibility of the individual to declare cryptocurrency-related taxable income. Failure to declare the income could result in interest and penalties
Cryptocurrency gains bringing value into South Africa
Since no one owns a particular cryptocurrency network it is hard to say where exactly the currency lives and many South African's may be holding wallets on exchanges, hot wallets or even cold storage which is fine in the eyes of the law. But once you bring that money into local currency by trading it for fiat with any of the exchange we have available such as Luno or CoinDirect you will need to follow one of the procedures above pertaining to your specific situation.
Tell us your cryptocurrency story
Have you been earning cryptocurrency and cashing it out into fiat (South African Rands)? How do you handle your cryptocurrency earnings? Let us know in the comments below.
Are you looking to promote your business?
South African finance business owners can create your free business listing on nichemarket. The more information you provide about your business, the easier it will be for your customers to find you online. Registering with nichemarket is easy; all you will need to do is head over to our sign up form and follow the instructions.
If you require a more detailed guide on how to create your profile or your listing, then we highly recommend you check out the following articles.
If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on money tips.
- Common Finance Mistakes South African Small Businesses Make
- Why Blockchain and Cryptocurrency Is The Future Of Money
- 24 Ways To Earn Cryptocurrency