Bitcoin… Ethereum… Litecoin… Dash…
You may have been trading in cryptocurrencies over the past tax year. You may also have recently sold some of your long-term cryptocurrency investments. With tax season on the horizon, it is essential that firstly you declare your gains in your tax returns, and secondly that you declare your gains correctly, to avoid potential penalties and possibly even criminal charges.
How are the gains from your cryptocurrencies taxed? The South African Reserve Bank does not regard cryptocurrencies as legal tender, nor does the Income Tax Act 58 of 1962 define “cryptocurrencies”. As a result, there appears to be confusion surrounding the taxation of cryptocurrencies.
The South African Revenue Services released a statement in April 2018 that it intends to regard the taxation of cryptocurrencies in accordance with the normal income tax rules of South African tax law.
In terms of the normal income tax rules of South African tax law, the gains from the sale of cryptocurrencies will either be taxable as a capital gain or as a revenue gain, depending on whether the cryptocurrencies were held as capital assets or revenue assets. The test applied when considering whether profits on cryptocurrencies should be taxed as revenue or capital assets will involve the taxpayer’s intention, both at the outset and whilst holding the assets/cryptocurrency. If the intention at the outset is to make a profit (amongst other things), or the intention changes so that the taxpayer has “crossed the Rubicon” by embarking on a scheme of profit-making, it is likely to be taxed as a revenue asset. If the taxpayer invests with a view to holding the cryptocurrencies long-term (similar to a long-term property investment) then the profits are likely to be taxed as a capital asset.
Beware that SARS is likely to focus their attention on the taxation of cryptocurrencies in the coming months, including exploring the use of technology to track the movement of cryptocurrencies belonging to South African tax residents.
Should you require assistance with your tax returns, or advice regarding the taxation of your cryptocurrencies, get in touch with our tax experts who will be able to assist you.
Erlise Loots | Partner
Areas of Expertise: Tax, Curatorships, Trusts, Estates, Exchange Control & Non-resident services and advice
This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)