The South African Revenue Service (SARS) is targeting cryptocurrency traders to sniff out potential non-compliance, local tax experts say.
Tax practitioners at Tax Consulting SA emphasized that taxpayers need to recognize that activities related to cryptocurrencies, even if conducted on-platform and not necessarily resulting in fiat currency gains, are subject to rigorous reporting obligations. This includes the declaration and payment of taxes owed on any benefits accrued from these activities.
“SARS and the South African Reserve Bank (SARB), through existing working groups and international information exchanges, have reiterated their already strong stance on eradicating non-compliance. This includes a keen focus on crypto asset taxation and rectifying historic taxpayer issues of non-declaration of crypto-related profits or gains, albeit without providing firm guidance to the average taxpayer,” they said.
Addressing the perception that crypto assets are not subject to SARS taxations, the experts clarified that under South African tax law, crypto assets are categorized as financial instruments according to the provisions of the Income Tax Act.
“This means that any profits resulting from dealing in crypto assets may fall within the tax net and be subject to disclosure and possible liability towards SARS. As simple as this disclosure may sound in theory, unfortunately, the reality is more complicated. Cryptocurrency transactions are subject to a range of tax regulations, including capital gains tax, income tax, and even VAT in some cases,” they said.
A common misconception within the crypto community is that a ‘taxable event’ occurs only when a crypto asset (CA) is disposed of, resulting in the realization of fiat currency profit or gain. However, any sale, exchange (CA for CA), or disposal of crypto assets is likely to be considered a taxable event.
The critical factor determining the tax liability is whether the disposed crypto asset is classified as a capital asset or trading stock. If taxpayers can demonstrate the correct capital intent and objective external factors, they will be subjected only to Capital Gains Tax (CGT).
“Like selling a house, CGT liability arises if the profits received from the sale of crypto assets exceed the initial cost and are at a lower rate of taxation than if the proceeds of the sale were deemed to be normal income,” the experts said.
If SARS considers the profits from crypto dealings as income, they will be taxed at the marginal rates applicable to individuals, which can be up to 45%, or companies, at 27%. This is particularly relevant for frequent traders, as their crypto activities could push them into higher tax brackets.
Following significant crypto returns, it might be tempting to ‘cash in’ and spend the profits on luxury items. However, it is important to remember that SARS is intensifying its crackdown on crypto-tax compliance and demanding its share.
Individuals who hold or have ever held cryptocurrency should not assume that past non-declaration will shield them from future tax liabilities. SARS has made it clear that it will leave no stone unturned in its mission to collect revenue by any means necessary.
Additionally, the belief that SARS cannot investigate beyond five years is incorrect. SARS is fully entitled to examine all historical transactions if a taxpayer has failed to disclose material facts, committed fraud, or made misrepresentations.
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