South African Crypto Tax in a Nutshell

Posted by Nico Viljoen on 13 August 2018.

Nico Viljoen

MBA, Hons BCompt, HDip Tax (Jefferson School of Law USA), HED, AGA(SA) DBA Graduate Student, Business School Netherlands

The Tax Shop Head Office

More about Nico Viljoen

Nico obtained qualifications from various academic institutions and currently studies towards the DBA at the Business School Netherlands. He is an associate member of the South African Institute of Chartered Accountants. After completion of his articles with PWC, he lectured in the fields of taxation, accounting and auditing at the Vaal University of Technology. Thereafter, he occupied financial executive positions in the heavy engineering, chemical, transport and automotive industry. Nico has owned and managed various successful businesses over the 20 years. Nico has been a business mentor for various organisation and serves as an external moderator for taxation and internal auditing.

While crypto trading and mining are prohibited in many countries, digital currency seems to be just taking off in South Africa, with President Cyril Ramaphosa announcing his support of the idea of a single currency for the African Union earlier this year.  He suggested a single currency that may be digital-only.

According to a Mail&Guardian report on 22 March 2018, Ramaphosa said he wasn’t sure what a single African currency will look like but said a digital currency may precede a “real” single currency, as it is easier than having a “proper, full” currency. The report suggested that an “African Bitcoin” might be on the cards to implement this idea.

With this is mind, it’s essential to look at South Africa’s current tax implications of trading, mining, as well as buying and selling physical goods in cryptocurrency.

The popularity of cryptocurrencies, also referred to as ‘virtual currencies’, has been growing steadily in South Africa over the past few years. The absence of legislation relating to the taxation and regulation of cryptocurrencies are triggering a boom in the mining and trading of cryptocurrencies.

Currently, the South African Reserve Bank does not believe that cryptocurrency falls within the ambit of their regulatory compliance, maintaining that cryptocurrencies are Decentralised Convertible Virtual Currencies (DCVC’s) which are not regarded as legal tender. Interestingly though, on 6 April 2018, shortly after President Ramaphosa referred to an African digital currency, the South African Revenue Service (SARS) has announced that cryptocurrency transactions are subject to the general principles of South African tax law and that SARS will continue to apply normal income tax rules to cryptocurrencies and will expect taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

Simply put, SARS’ stance on the tax treatment of cryptocurrencies is simple: The onus is on taxpayers to declare all cryptocurrency-related taxable income in a tax year. Failure to do so could result in interest and penalties.

SARS’ position on cryptocurrency is also in line with the rules of Capital Gains Tax; similar to that of foreign revenue collection authorities in countries such as the United States, India and Canada, where cryptocurrency is treated as property.

Here are the three most important things you need to know about tax as a South African crypto-user:

  1. Purchasing. In line with SARS’ statement, cryptocurrency is deemed an intangible capital asset if it is purchased for investment purposes. Therefore, any gain on the disposal of cryptocurrency shall be taxed in terms of the provisions dealing with Capital Gains Tax. Thus, when a taxpayer disposes of virtual currency, the disposal will trigger either a capital gain or a capital loss and be taxed accordingly in terms of the income tax rules. Furthermore, taxpayers are also entitled to claim tax deductions, if the expenses are linked with the cryptocurrency accruals or receipts.
  2. Trading. If transacting with a virtual currency becomes frequent, it could be argued that the taxpayer is a virtual currency speculator. Consequently, the income generated from such trade must be included in the taxpayer’s taxable income.
  3. Mining. Should a taxpayer “mine” cryptocurrency, such as Bitcoin or Ethereum for example, SARS requires that if an asset is held on a revenue account then it forms part of that taxpayer’s taxable income.

To make life easier when it comes to crypto tax, contact The Tax Shop!