Non-tax paying crypto traders face possible jail time if the South African Revenue Services (SARS) decides to lay tax offense charges against them.
Thomas Lobban, a legal manager at a local tax consultancy firm, Tax Consulting South Africa, admits that many crypto traders are not aware of the extent of their tax liabilities.
Some taxpayers have received audit letters that request that they provide reasons for their cryptocurrency investments, and provide letters from trading platforms confirming the investments.
Lobban blames SARS for not offering adequate guidance on tax treatment for crypto trading. He also says that many traders think that only withdrawals are liable to taxation.
On the contrary, all cryptocurrency transactions must be declared on tax returns, whether you bought any cryptocurrency, or exchanged cryptocurrency for another cryptocurrency. Taxpayers are also required to state if they mined cryptocurrency.
The revenue service also requires taxpayers to declare it if they were in any way paid in cryptocurrency.
The tax expert has warned that SARS can request the collection and provision of information in relation to a taxpayer from other revenue authorities globally, as well as request assistance in the collection of tax, in terms of the many tax treaties it has in place.
At the beginning of the year, SARS commissioner Edward Kieswetter confirmed that undisclosed cryptocurrency holdings wlll be a big area of focus for the tax agency this year.
SARS has already included questions about cryptocurrency investments in the capital gains tax portion of tax returns, creating source codes for cryptocurrency trading profits (2572) and losses (2573) respectively, which leaves no room for a taxpayer to maneuvre in light of non-disclosure in their returns.
According to Lobban, SARS doesn’t view cryptocurrency as a currency.
Profits from cryptocurrency investments can either be taxed as income, or attract capital gains tax. This depends on whether a taxpayer is an active trader in cryptocurrencies, or investing for the long run:
- A short-term investor or trader in cryptocurrencies pays tax at their personal income tax rate
- For longer-term investors, capital gains tax (18% for individuals) is payable
Taxpayers who fail to correctly disclose their cryptocurrency-related income or comply with an audit request by SARS may be convicted for an offence and be liable to a fine or imprisonment for up to two years, says Lobban.
If found guilty of gross negligence, a taxpayer could face penalties more than double the owed amount, plus interest. And if found guilty of tax evasion, the penalties could be more than triple the original amount.
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