Frequently asked questions about tax & cryptocurrency
Posted 5 May 2021 under
Does SARS regard cryptocurrency as a real currency?
At this time, cryptocurrency is not regarded as a legal currency and they operate independently from the central bank. As there are currently no laws or regulations governing the use of cryptocurrency in South Africa, crypto traders or users have limited legal protection according to the general common law. In other words, if you choose to use or trade cryptocurrency you do so at your own risk.
How does SARS treat crypto?
Crypto transactions or the speculation of crypto transactions is subject to the general tax law principles and will be taxed according to the existing South African tax laws. However, each case will be treated according to their specific circumstances, but in some cases, capital gains tax or normal tax may be applied.
Are crypto traders subject to tax based on the income they earn?
Currently, income earned on crypto is subject to normal tax. If the total taxable income earned is higher than the tax threshold for that particular financial year, then the taxpayer will be liable to register as a provisional tax payer.
If I receive cryptocurrency as payment for goods or services, should I include the fair market value in gross income?
Yes. This type of income will be subject to normal tax.
Does cryptocurrency constitute as self-employment income if it is received as payment by an independent contractor for services rendered?
In this case, the income will be subject to normal tax. If the total taxable income earned is higher than the tax threshold for that particular financial year, then the taxpayer will be liable to register as a provisional taxpayer. Deductions may be allowed in the case where there may have been expenditure in order to produce income or for the purpose of trading, and in the case where the general income tax principles are applied.
If an employer pays me by cryptocurrency for services rendered, will that be considered as wages for employment tax purposes?
Yes. This type of income will be considered as remuneration and will be subject to normal tax.
Will I be subject to penalties if I don't treat crypto transactions in a way that complies with South African tax laws?
Depending on the law that has not been complied with, you may be subject to penalties. Take a look at Chapter 16, and section 223 specifically, of the Tax Administration Act, 2011, for more information.
What would the acceptable proof of purchase and sale price be for cryptocurrencies?
Conventional receipts and/or invoices would be deemed acceptable.
Which purchase price will be accepted for crypto - the purchase price paid on the date of the purchase? Or will it be considered as shares, using the annual average?
The purchase price will be based on the earlier of the date of receipt, or accrual. In South Africa, cryptocurrency is not considered a share, so the annual average will not apply.
How will SARS track cryptocurrencies like Bitcoin?
SARS has many powers as stipulated in the Income Tax Act. These enforcement and auditing processes are highly confidential and therefore not shared with the public.
Are cryptocurrencies like Bitcoin taxed retrospectively? Will penalties be imposed for non-compliance?
Transactions that include cryptocurrencies will follow conventional tax laws and principles. This means that all penalties and interest will be charged as per normal.
Will expenses incurred in generating Bitcoin income be tax-deductible?
All expenses incurred on cryptocurrencies are tax-deductible if they meet all the requirements as stipulated in the Income Tax Act.
Cryptocurrencies like Bitcoin are not regarded as a currency, nor are they regarded as an asset. So, how will SARS be taxing it?
Although it is not regarded as a currency for the purposes of income tax, it is regarded as an asset.
How should I declare cryptocurrency trading on my IRP6 or Provisional Tax Return?
Profits from cryptocurrency trading (such as Bitcoin) should be declared in the total taxable income for the financial year.
How and where on the ITR12 should I declare my cryptocurrency income?
Your cryptocurrency profit will either be taxed as a capital gain or it will be subject to normal tax, depending on the specific details of the case. If it is taxed as a capital gain, you would need to declare in the capital gains section of the ITR12. If it is taxed as normal income, you would declare the income and related expenses in the local business section of the ITR12.