Luis Clark
Luis Clark
Luis is a personal finance expert who has been passionate and writing about crypto for more than five years.
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    Crypto Tax South Africa: All You Need to Know in 2022

    Crypto Tax South Africa

    Unaware of their obligations to the South African Revenue Service (SARs), many young people are experimenting with crypto assets. Recent interventions by SARs requesting client data from some major cryptocurrency exchanges emphasise that the government is serious about getting its piece of the pie and its share of any profits you make.

    SARS considers a crypto asset a digital representation of value transferred and stored electronically for making payments, investments, and other forms of utility. Crypto assets are legal cash as per South African Tax Laws, despite going by the more well-known label of “cryptocurrency.” The Intergovernmental Fintech Working Group (IFWG) reaffirmed that although crypto assets serve some of the same functions as money, they are not “money” in the sense of legal tender.

    The Intergovernmental Fintech Working Group (IFWG) identified several risks resulting from the continued absence of regulation of crypto assets and crypto asset service providers in South Africa and advocated its introduction. Combating tax evasion and illegal tax avoidance schemes is one of the goals the IFWG listed for regulating crypto assets.

    Transactions using cryptocurrencies are subject to income and capital gains taxes. While SARS has set out unclear guidelines on how crypto is taxed, in this crypto tax South Africa Guide, we shall look at the probable outcomes for the most common cryptocurrency transactions.

    Do I Need to Pay Crypto Taxes in South Africa?

    Crypto Tax Time

    SARS will apply regular income tax rules to crypto assets and anticipate that impacted individuals would record Bitcoin earnings or losses as part of their taxable income. Taxpayers must report all cryptocurrency-related taxable income in the tax year it is received or accrued. There will be a levy of interest and penalties on those who fail to submit financial data to SARS.”

    Crypto assets are considered assets of an intangible nature in South Africa rather than being treated like money or property. So, cryptocurrency is subject to income tax and capital gains tax. Unfortunately, it is unclear whether crypto assets are taxable capital or taxable income in South Africa.

    Crypto investors or customers must report their total crypto asset portfolio on their income tax return if they have been purchasing or selling cryptocurrency from a South African exchange or one situated abroad. SARS mainly targets crypto assets; hence, crypto investors must keep meticulous track of their crypto-asset dealings.

    Even though you do not use fiat currency, crypto assets receive the same capital gains tax treatment as traditional assets. However, for those who predicted it correctly, Bitcoin’s gains have been enormous, which could result in a significant tax burden. Whether or not there have been disposals is what determines the tax implications.

    Can the SARS Track Crypto?

    The Income Tax Act specifies the extensive authority that SARS has. According to the Income Tax Act, South African Revenue Service (SARS) has many collection powers. It includes requiring third-party service providers to divulge financial information and submit financial data when requested, locally and internationally.

    In June 2021, the three most prominent South African cryptocurrency exchanges (Luno, VALR) confirmed that the South African Revenue Service (SARS) had contacted them regarding providing information on a selection of customers, which they were obliged by law to produce.

    So yes, SARS may access your data if you have a South African Bitcoin exchange account. Additionally, SARS may try to locate that information if you trade on a foreign exchange.

    How Do You Calculate Crypto Taxes in South Africa?

    Magnifier on crypto tax calculator

    Crypto assets can be held and sold with revenue or a capital intent, which will decide whether capital gains tax or income tax applies. Crypto assets are subject to the same laws and regulations used to determine whether an investment is a capital gain or income.

    For example, acquiring and holding crypto assets as long-term investments can help investors realize capital growth. In this scenario, a capital gain or loss will likely occur upon selling crypto assets (either through an exchange for cash or a barter transaction). If a capital gain materializes, it will be subject to tax at the applicable rate, which for companies is 22.4% and for individuals is a maximum of 18%.

    The rules of the Income Tax Act associated with the acquisition and disposal of assets in foreign currency must be taken into account if a taxpayer purchase and sells crypto assets using foreign currency rather than Rand. Suppose an individual or non-trading trust purchases cryptocurrency and sells it for the same foreign currency. In that case, the capital gain or loss should be calculated in that currency and converted to Rand using the current exchange rate or the year’s average conversion rate.

    On the other hand, a company or trading trust must first translate the proceeds and expenditures to Rand separately if it purchases or sells cryptocurrency assets in the same foreign currency. The company must calculate the foreign currency proceeds using the relevant spot or average exchange rate on the day they were received or accrued.

    The company must calculate the foreign exchange expense using the suitable spot or average exchange rate on the day the expense was incurred. After these conversions to Rand, we calculate the total capital gain or loss (in Rand).

    A person who regularly transacts in crypto assets may be subject to income tax at the applicable rate of 28% for companies and a maximum marginal rate of 45% for individuals. Additionally, taxpayers can deduct non-capital expenses related to Bitcoin accruals or receipts as long as they were incurred in generating the taxpayer’s income and for commercial purposes. In this scenario, any crypto assets still in possession after the assessment year should be treated as “closing stock” for tax purposes and valued at cost.

    The “mining” of crypto assets appears to be viewed as revenue by SARS, resulting in an immediate accrual or receipt upon successful mining of the crypto asset, which is subsequently recorded as “trading stock” by the miner. With this approach, it is not clear how to estimate the value of “stock” in compliance with section 22 of the Income Tax Act without subjecting the miner to double taxation when he sells the crypto asset. According to this procedure, even before a crypto asset has been exchanged for cash or used in a barter transaction, the successful mining of a crypto asset may result in income tax at the aforementioned rates.

    Crypto Capital Gain South Africa

    South African Rand

    According to South African Revenue Service (SARS), crypto transactions will be subject to taxation as per current South African tax regulations. It means that cryptocurrency profits will be taxed as revenue transactions or according to capital gains tax principles (i.e., as regular income, like your salary or freelance income). It will depend on the taxpayer’s situation and initial motivations for obtaining cryptocurrency.

    Income received or accumulated through crypto asset transactions is taxable on the revenue account under “gross income” according to normal income tax regulations. As stated in the Eighth Schedule to the Act, such gains may also be considered capital in character for taxation under the Capital Gains Tax (CGT) paradigm. According to current legal precedent, determining whether an accrual or receipt is income or capital must pass specific tests (of which there is no shortage).

    When paying taxes on capital gains, an individual has an annual exclusion of R40,000. 40% of the capital gains are taxable income per the income tax tables. If you are in the top marginal tax bracket of 45%, the maximum amount you will pay tax is 18%.

    Your marginal rate is probably much lower if you’re a young professional starting out, say, 31%. To be in the top bracket, you must make more than R1.6 million annually.) Always keep in mind that CGT only applies when you sell an asset. You don’t pay anything on an asset you own that rises in value.

    Crypto Capital Gains Tax Rate

    Capital Gains Tax is one of the taxes crypto investors face in South Africa. A Capital Gains Tax event occurs when you dispose of the crypto assets. Theoretically, SARS views the sale of crypto assets as a taxable event for crypto capital gains, and taxpayers must declare their crypto totals on their income tax returns. However, the method for determining whether cryptocurrency transactions qualify as capital gains transactions is not specified.

    The following four disposals usually are subject to capital gains tax:

    • Swapping crypto assets such as Bitcoin for Ether for example
    • Selling crypto assets for fiat currency, such as Rands/Dollars
    • Gifting crypto assets
    • Spending crypto assets to buy goods and services

    Taxed as an investor

    Regarding capital gains tax, South African taxpayers are allowed an annual exclusion of R40,000 before including 40% of any gains in their taxable income, taxed at their marginal tax rate or income tax bracket.

    Taxed as a trader

    Your total gain is taxable if you have to pay taxes on Bitcoin trading or mining profits. Taxpayers may also deduct expenses related to crypto asset accruals or receipts as long as they were incurred to generate the taxpayer’s revenue and for commercial purposes.

    Crypto Income Tax

    Income from crypto asset trades may be taxed on the revenue account under “gross income” according to standard income tax regulations.

    Your total profit, less any qualifying expenses you incurred while obtaining that profit, such as your fiber network charges, must be added to your annual taxable income if you are subject to taxation on income from trading. For example, if you are currently paying the highest marginal tax rate, you will pay R242,550 on a profit of R539,000 after expenses (45%).

    There is a part on the tax return where you can report capital gains on items you sold during the tax year, and it explicitly mentions crypto assets. There is another box for income received as a trader if you are.

    Crypto Capital Loss

    Crypto Losses

    Losses in the cryptocurrency market can be disturbing unless you know about tax-loss harvesting. Utilizing the tax-loss harvesting method, you can lower your tax liability by matching capital gains with capital losses.

    Suppose you bought $10,000 worth of Bitcoin and sold it for $30,000 later. On cryptocurrency earnings of $20,000, taxes would be due. Your capital gain when you sell cryptocurrencies for more than you purchased. Your cost base is typically the sum of your initial investment.

    However, you suffer a capital loss if you sell crypto assets for less than you purchased. Your cryptocurrency losses can be used to offset other crypto asset gains through tax-loss harvesting. Any further losses are carried forward to the following year. The tax-loss harvesting regulations make reducing your current and future tax obligations simpler.

    Tax on Lost or Stolen Crypto Asset

    Hacker stealing cryptocurrencies

    In the realm of cryptocurrencies, losing crypto assets to scammers, hackers, and exchange closures is all too typical. But what does this mean for your taxes? To make a loss claim, learn how to report stolen or lost cryptocurrency.

    Hackers and scammers are not new to the cryptocurrency business. The recent significant exchange hacks at Coincheck in 2018, KuCoin in 2021, and Poly Network will likely stick in the minds of many investors.

    Additionally, many investors have permanently lost their crypto assets. The most common ways to happen are misplacing private keys, sending your crypto assets to the incorrect wallet, or losing or damaging your cold storage device.

    Most investors know that they must report any gains, losses, or other cryptocurrency-related income. No matter where you live, you must pay capital gains tax on your cryptocurrency gains. You can offset the net capital losses against the net capital gains. You pay less tax due to this reduction in your overall tax burden. If you’ve already offset the maximum net capital loss you are permitted to for that year, most nations even allow you to carry losses forward to subsequent tax years.

    Most likely, SARS will ask you for proof before approving your claim for a capital loss, such as:

    • The wallet address that the key belongs to
    • When you receive the key and when you lose 
    • The cost of acquiring the stolen/lost cryptocurrency
    • The fact that you had control over the wallet
    • How many cryptocurrencies there was when you misplaced the key
    • That the wallet’s storage hardware is in your possession.
    • The transactions to the wallet from an exchange linking to your identity

    Taxes on NFTs Trading

    Opensea NFTs Marketplace

    The sale of the NFT results in capital profits or losses, much like the sale of other types of property. Long-term capital gains/losses would apply if kept longer than a year, whereas short-term capital gains/losses would apply if held less than a year.

    All digital assets, including NFTs, are classified as “property” for tax purposes even though there are still numerous uncertainties regarding the tax implications of making, purchasing, and selling NFTs. The sale of the NFT results in capital profits or losses, much like the sale of other types of property. Long-term capital gains/losses would apply if kept longer than a year, whereas short-term capital gains/losses would apply if held less than a year.

    However, it is debatable whether some NFTs could be subject to the IRS’s tax code for “collectibles,” which would have unique effects on those with high incomes. When you use cryptocurrency to buy the NFT, things become more complicated. There can be a taxable event for the cryptocurrency payment and the NFT ownership.

    Tax on Crypto Gifts and Donations

    Giving cryptocurrency as a gift in South Africa is treated precisely the same as selling it. The gift’s proceeds would equal the cryptocurrency’s fair market value on the day it was gifted. It is unclear where capital gains tax or income tax applies.

    Crypto donations in South Africa operate similarly to traditional gifts in that they are tax-deductible if made to an approved charity. You can deduct the amount you donated from your taxes (calculated as the cryptocurrency’s dollar value at the time of donation).

    Is Any Crypto Tax-Free in South Africa?

    There are some instances where crypto is taxable, and some where crypto is not taxable.

    Not Taxable

    Like most countries, South Africa has no taxes on cryptocurrency purchases. Bitcoin also has no VAT. When you decide to sell or otherwise “dispose” of your cryptocurrency, which is when you will be required to pay tax, you must retain proper records of the transaction to determine the cost basis of the transaction.

    Even if the value of your portfolio rises, you won’t have to pay tax on the Bitcoin you have if your goal is to buy and hold it. It is a taxable event when you sell, exchange, use, or give away your cryptocurrency. Transferring cryptocurrency between various wallets or accounts does not result in CGT and is not a taxable event.

    Taxable

    Selling

    SARS says that selling crypto for fiat money like the Rand is a taxable event. Profit made from the sale of cryptos attracts a tax. A deal will likely be subject to CGT if you act as an investor, but it is unclear whether there will be an assessment of income tax or capital gains tax.

    Swapping crypto

    In South Africa, exchanging one cryptocurrency for another (such as BTC for XRP) is a taxable event. According to SARS, trade consists of two separate transactions: first, you sell your Bitcoins for a set number of fictitious Rands, and then you use those Rands to purchase Ether (ETH). You must still pay tax on the sale of the BTC even though you never really got any Rands.

    The market value of the purchased crypto assets determines the gain. You must consider the market value of the cryptocurrency you sold at the time of the transaction if you cannot value the cryptocurrency you received.

    A swap will likely be subject to CGT if you are acting as an investor, but as of this writing, it is unclear whether income tax or capital gains tax will be due.

    Spending Crypto 

    This exchange refers to as a barter exchange. As a result, the normal barter transaction rules are in effect. In other words, this cryptocurrency is taxable and shown as income on the ITR12 form.

    Paying in cryptocurrency

    You cannot avoid income tax, whether a freelancer or an employee of a business that pays its staff in cryptocurrency.

    Make sure to record this income on your annual tax return since, in most countries where cryptocurrency is taxable, any coins received as income are taxable at the market value when you receive them. 

    Although it is still unclear whether capital gains tax or income tax will be applied, crypto income will likely be taxable if you operate as an individual.

    Mining

    The tax treatment of cryptocurrency mining is subject to the standard cash regulations and normal barter transaction rules. As with income taxes, there shall be tax assessment for Bitcoin miners when they obtain cryptocurrency.

    According to SARS’ 2018 regulations, “newly acquired cryptocurrency is held as trading inventory and can be realized through either a conventional cash transaction…or a barter transaction” until it is sold or exchanged for cash.

    Staking Crypto

    Similar to dividends, stake incentives are often subject to local income taxes. Although it is not yet apparent if income tax or capital gains tax will be applied to your staking income if you are an individual, SARS will do so.

    Airdrops

    The majority of the time, airdrops are recognized as taxable revenue in most nations. As a result, you must declare R400 in tokens received as part of an airdrop as taxable income.

    Your airdrop income will presumably be subject to income tax if you operate as an individual. Still, as of this writing, it is unclear whether capital gains tax or income tax will be applied.

    What is a Crypto Tax Calculator?

    What is a crypto tax calculator

    According to SARS, crypto transactions will be subject to taxation as per current South African tax laws. It means that cryptocurrency profits will be taxed as revenue transactions or according to capital gains tax principles (i.e., as regular income, like your salary or freelance income).

    Any income derived from the transfer of cryptocurrencies would be subject to tax. Furthermore, aside from the acquisition cost, no decreases are permitted in the cryptocurrency sale price. Additionally, you cannot offset the loss from transferring cryptocurrencies with earnings from others. We will not carry over losses in the next year to adopt future income from cryptocurrency trades.

    Consequently, by using the pertinent income tax laws, the cryptocurrency tax calculator aids the taxpayer in calculating the amount of tax due.

    How to Use a Crypto Tax Calculator?

    Importing your crypto data is the process’s first and most crucial step. You can choose the exchange you previously used or your cryptocurrency wallet under the import tab. Either a CSV import feature or an API that we may utilize are available on the sales. For significant exchanges, there must be guidelines for carrying out both.

    Log into your exchange account and retrieve a transaction or trading history if you’re using a CSV import, then upload it to CTC.

    For an API import, generate a read-only API key and provide the details to CTC. We have strict security measures, but we always recommend generating read-only API keys when sharing your data with third parties. They won’t be able to trade on your behalf because of this.

    For cryptocurrency wallets, all we need is the wallet’s public address; using this, we can access the blockchain’s transaction history.

    You can also give your wallets a nickname at this time; while it may seem unnecessary, doing so makes it much simpler to review transactions in the following phase. Transactions with wallet names to and from rather than a random string of numbers and letters are considerably simpler to remember.

    The most crucial thing to remember is to upload your exchange accounts and wallets. Wallets and reports from your trading history make it possible to calculate your tax liability as accurately as possible, and all governments must maintain thorough records.

    We can determine the transaction type from the import file or API for exchange accounts. Still, the procedure is more challenging for other crypto wallets because there are so many different sorts of transactions. You’ll note that some transactions class as in/out, which indicates that for particular platforms, like Uniswap or DeFi protocols, we can generally determine if you were making a trade, receiving an interest payment, or transferring across protocols.

    Best Crypto tax calculator in South Africa

    For investors, amateurs, and accountants interested in cryptocurrencies, Koinly provides accounting and tax reporting software. Koinly supports more than 400 Exchanges, 100 Wallets, and more than 170 Blockchains with its more than 700 integrations. You can track your crypto assets and taxes with ease. You can view your overall holdings, portfolio growth over time, tax liabilities, and all your wallets and accounts combined.

    Koinly South Africa Home Page

    Final Thoughts

    SARS considers a crypto asset as a digital representation of value transferred and stored electronically for making payments, investments, and other forms of utility.

    SARS views cryptocurrencies as intangible assets rather than as a form of money. In actuality, “Crypto Assets” rather than “Cryptocurrency” are mentioned in the annual tax return (ITR12). The ordinary common law provides only rudimentary legal protection for cryptocurrency merchants and users in South Africa, as there are currently no legislation or regulations restricting their use. In other words, using or trading cryptocurrencies is something you do at your own risk.

    According to SARS, crypto transactions will be subject to taxation in accordance with current South African tax regulations. It means that cryptocurrency profits will be taxed as revenue transactions or according to capital gains tax principles (i.e., as regular income, like your salary or freelance income).

    Our extensive analysis of the South African Crypto Space doesn’t stop here. You can also check out our Crypto Mining South Africa Guide.

    FAQ

    Most frequent questions and answers

    Taxpayers can also claim expenses related to crypto asset accruals or receipts as long as they are for generating the taxpayer’s revenue and for commercial purposes.

    Cryptocurrencies are not recognized as a currency since there are currently no laws or regulations governing the use of crypto asses in SA. Crypto traders have limited legal protection according to the common law. SARS defines crypto as an asset and a financial instrument. Legally, it crypto is an intangible asset.

    The IFWG released a position paper on crypto assets (updated 2021). The purpose of the position paper is to provide specific

    The IFWG released a position paper on crypto assets (updated 2021). The purpose of the position paper is to provide specific recommendations for the development of a regulatory framework for crypto assets, including suggestions on the required regulatory changes to be implemented.

    recommendations for the development of a regulatory framework for crypto assets, including suggestions on the required regulatory changes to be implemented.

    As a crypto trader or investor, you can use FIFO to calculate your gains; however, you must be able to individually identify your cryptocurrency assets.

    Skrumble.com provides all its content for informational purposes only, and this should not be taken as financial advice to buy, trade or sell cryptocurrency or use any specific exchange. Please do not use this website as investment advice, financial advice or legal advice, and each individual’s needs may vary from that of the author. This post includes affiliate links with our partners who may compensate us. 

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