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Declaring profit on Bitcoin trading and speculation

Posted 25 November 2015 under Tax Questions



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BitMan says:
24 November 2015 at 8:22

I am earning a local profit from trading Bitcoin in various exchanges throughout the world. I have lodged this under: Other Receipts Accruals - Royalties - Amount Profit - 49224

This profit was calculated by tracking how many payments I receive FROM BitX.co.za and Ice3x.co.za (which was used to trade Bitcoin for ZAR)
LESS payments made TO BitX and Ice3x, as well as all payments made to my Mercantile Bank account (which is only used to send Forex to offshore Bitcoin exchanges) as well as any other Forex payments (through my main account at FNB) destined for offshore Bitcoin exchanges. I also included a small amount for depreciation on my laptop used for the trading as well as all bank fees charged to send forex.

Questions:

1. Is this the correct category for reporting this profit for the 2015 tax year where I was still earning a salary as main income? For the 2016 tax year I have already started filing provisional tax using the same calculations as this is now my main income stream (self employed)

2. Is the profit calculation more or less correct?

3. Some of the trading profits I have kept in Bitcoin and see this as capital to be used in future and income is only realised once I convert Bitcoin to ZAR and receive these funds in my bank account.

4. Any other advice?

Thank you

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TaxTimTaxTim says:
25 November 2015 at 10:18

If you are trading for revenue purposes then there cannot be a capital element. You should treat them similar to trading stock. So the sales less cost of sales.

For the purposes of working out Cost of Sales you would use the formula of:

Opening stock
purchases
- closing stock

This needs to be converted at the average exchange rates published by SARS.


BitMan says:
25 November 2015 at 11:15

Thanks.

I hope we can keep this discussion going for a while because I believe there is very few people and accountants in South Africa that knows how to deal with Bitcoin profit and this might be helpful to a lot of people in future.

So to confirm I understand correctly lets use a sample:
- Assume 1 BTC (Bitcoin) = R1000
- I start off with 0BTC (opening stock)
- I buy 10BTC costing me R10,000
- I manage to sell 9BTC at a later stage for R10,000 (keeping and thus making 1BTC profit)

For tax purposes I have to thus:
- Take my Sales(10k) less Cost Of Sales (which is 9k if I use your formula and you assume the 1BTC closing stock is worth 1k)
- Which is thus 10k - 9k = 1k of profit to be declared to SARS.

Questions (numbered 1 - 4 below):
1. Is my above hypothetical example calculated correct based on your reply?
2. I assume since this is not capital appreciation but "trading for revenue purposes" its is declared as normal income tax and not capital gains or any other form of income?
3. There is no SARS exchange rates for BTC to calculate "closing stock" and in addition, BTC exchange rates vary wildly as quoted by the only 2 South African Bitcoin exchanges. What happens in such a case?
4. Since there is no SARS laws yet prescribing Bitcoin is there anything that legally compels me to treat the profits made in BTC as "closing stock" or can I for the time being get away with treating it as capital? Thus implying declaring zero profit in my above example?


TaxTimTaxTim says:
25 November 2015 at 21:12

1. That is correct, however SARS may introduce special ways of taxing bitcoins due to their increasing popularity.

2. Yes, normal income not capital.

3. Apologies, we were thinking that their was a USD equivalent. You would have to use the accredited exchange rates quoted as per those companies.

4. Regardless of the actual instrument you are actively trading for a profit and not to hold an asset so SARS would consider that revenue.


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