Cryptocurrency regulation is still a debated topic in South Africa, but when it comes to tax it isn’t unclear. SARS requires disclosure of cryptocurrency assets by taxpayers.If a taxpayer is found out for not disclosing their crypto earnings by SARS or refusing or lying when asked under this audit to explain their involvement in cryptocurrency, then they are liable similarly to other tax laws.
However, there are some problems for SARS when it comes to tracking cryptocurrencies. Specifically, that cryptocurrency transactions are untraceable. While SARS can see a Bitcoin transaction on the public ledger, they can’t link it to a specific person. This is considered a significant benefit and one of the underlying purposes of this decentralised system.
SARS response to questions about how they plan to trace transactions is also vague. They simply say that “legislatively, SARS is granted a wide range of collection powers in terms of the Income Tax Act.”
Tax firm Tax Consulting South Africa explains that so far the only explanation SARS has given is that cryptocurrencies will be taxed following the rules of Capital Gains Tax.
However, in its 2018 tax FAQ on cryptocurrencies, SARS has identified that this only refers to long term investments while smaller daily trades should be considered income tax.
What does this mean for me?
This means that when dealing with your tax returns, don’t forget about your cryptocurrencies. Make sure you understand where you fall and what kind of tax your trading and ownership fall under.
Since SARS is taking an interest in cryptocurrency traders, abiding by the tax laws that SARS considers to apply to cryptocurrencies is important. Calculating taxable amounts from your exchange statements and answering audits honestly, will ensure you’re not caught out.