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Do I pay tax on profits from Forex trading?



Q: How do I pay Tax on Forex Trading? I am a South African resident. I am a full-time forex trader (almost a year now). I trade via a broker overseas, I deposit funds into my trading account via their bank accounts here in South Africa. I would like to know if my profits from trading forex are taxed, how do I declare this and what forms should I fill from sars. Also, what can I expect in terms of what percentage of tax I will pay?

TaxTim TaxTim says:
5 April 2022 at 9:24

  A: You would be taxed on the profit made if you are trading the forex and not just holding onto it for a few years as an investment. Forex Trading for the purposes of making a profit and not to hold as an investment will be treated as revenue, i.e. the same as Self Employed/ Independent Contractor/ Freelancer. The rate at which the profit would be taxed is based on the rest of your income. The profit is added to your other income and then applied against the tax tables to calculate what your tax payable is. Remember you will only pay tax on the income from trading and not from money that just sits in the account earning interest. That interest would be subject to tax, but only if it is greater than R23 800 per year.

If you are doing this for trading, then your trading may be seen as similar to trading stock in which case the Income Tax Act has specific rules. Essentially your opening and closing balances would be taken into account in calculating your actual profit each year. If, however, it is a straight profit that you are using then again whatever new profit you make that year would be seen as taxable in your hands and added to your other income to determine your taxable income,

Either way, the trader should be sending you an income tax statement detailing the profit earned on the actual trades and the interest earned on the balance in your account. This would then be added to your other income and the tax payable would be calculated based on the tax tables. On your tax return, you need to complete the local business/self-employed section and put in all your income - you will complete the gross income for the total amount received and then the cost of sales for what you actually started with. Ideally, you should keep a running spreadsheet so you can calculate exactly what the overall effect was, but you would have the amount contributed as the "cost of sales" and the year-end balance as the gross income amount. Remember as well, that you can deduct any other expenses that relate to earning this income, but these expenses must relate to the income and not be of a personal nature. You would include those on the next page of the return. The dollar amount would need to be translated at the SARS average rate for the year, which you can find on their website - http://www.sars.gov.za/home.asp?pid=54666

Forex traders who are seen as South Africa Residents, are required to declare all their income and profits from forex trading on their annual tax returns. The reason is that if you are seen as a tax resident, this means that you will be taxed on all your income (local and foreign). Please see our frequently asked questions for more information here https://www.taxtim.com/za/blog/frequently-asked-questions-about-tax-cryptocurrency

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