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How do I account for online Forex Trading in my income tax return?



A little background on myself. I am a salaried employee of the department of health in South Africa. I am registered with eFiling and have been submitting tax returns since 2008/09.

I have a hypothetical question about forex trading. If I make say R300 000 suppose in the 2012/2013 tax year and the amount I deposited was about R50000to fund the account, then what would my taxation be? Or at least what would the percent on taxation be and on which amount would that percentage be taken off? The net or the total?

My second question follows from the first. If in the next tax year I do not make any further deposits into my forex account, instead use the funds/profits made from the previous tax year to make profits of a further R300 000, what would my interest be, and against which amount would it be calculated against?

TaxTim TaxTim says:
5 April 2022 at 17:22

You would be taxed on the profit made if you are trading the forex and not just holding onto it for a few years. 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.

In response to your second question - If you are doing this, 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 salaried income and the tax payable would be calculated based on the tax tables.

Johneyza says:
5 April 2022 at 18:59

Thanks for the prompt reply. So, on my efiling chart, where would I have to mention the profit taxable if my eforex trading is similar to trading stock?

The currency traded in is in dollars and I have not transferred any amount to my bank account yet(profit that is), I keep trading on with the profits. So would the tax be applicable only when I transfer it into a bank account? There is no interest that is collected while it stays on in the forex account.

(just by the way, it's an online account, and I do the trading myself as an amateur in my spare time).

TaxTim TaxTim says:
5 April 2022 at 20:46

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 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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