Earlier this year, SARS reached out to cryptocurrency platforms to access their lists of clients and information in its bid to clamp down on the wealthy.
Many South Africans have been misinformed and are under the impression that crypto-activity is under the radar. Some believe it is untraceable or that it only needs to be declared to SARS when it is traded. This is incorrect as all individuals who have bought and held crypto assets during the tax year must disclose these holdings to SARS in their returns, regardless of whether they have sold their crypto or not.
Many South African taxpayers and tax practitioners are still unclear about how they will be taxed and the tax brackets. There remains considerable confusion around whether the gains should be subject to capital gains tax or normal income tax. For further details around the tax treatment of crypto, please read our blog here.
It is the understanding of most tax practitioners that those who have made a profit using cryptocurrency will be taxed under Capital Gains Tax (CGT), which would help benefit crypto traders as the CGT is levied at a lower rate than that of normal income tax.
But this is not set in stone for all cases, and as of this year, SARS has made it easier to criminally convict taxpayers. In the past, the tax revenue agency would need to prove that offenders willfully evaded paying their taxes, but as of 2021, they simply need to prove negligence on behalf of the taxpayer to lay a charge.
At this point, it is essential for SARS to prove their point, which means that they will be aggressive in their approach, and it would be wise for taxpayers to declare their crypto gains or losses and declare their crypto holdings on their returns.
SARS has embarked on a project to improve its information gathering capabilities which extends beyond South Africa’s borders. It has many tax treaties in place with overseas revenue authorities which means it will be collecting information on the offshore activities of South African taxpayers. Be warned – South Africans should not only be declaring local financial activity but offshore transactions as well.
If you are a crypto investor or trader, it would be best to get advice from registered tax practitioners like TaxTim to ensure you don’t land up on the wrong side of the law.