Registered users can save articles to their personal articles list. Login here or sign up here

More clarity on tax treatment of bitcoin, but…

Some questions remain unanswered.

The South African Revenue Service’s (Sars) announcement that it considers cryptocurrencies to be intangible assets and not currencies has brought an end to widespread speculation about the nature of cryptocurrencies.

Sars confirmed that it would apply normal income tax rules to cryptocurrencies and that it expects taxpayers to declare gains and losses as part of their taxable income.

Asheer Jaywant Ram, CA(SA) and senior lecturer in the School of Accountancy at the University of the Witwatersrand, says this means that transactions that involve cryptocurrencies like bitcoin will be regarded as barter transactions. In other words, individuals using bitcoin as a method of payment will need to consider the value of bitcoin in relation to the value of the goods received to determine income or gains.

For individuals who buy and sell cryptocurrencies on an exchange, the announcement means that if they transact as speculators, income received will have to be included in their gross income and will be subject to normal tax, Joon Chong, tax partner at Webber Wentzel, says.

However, where someone holds cryptocurrencies for long-term gains, the sale would be subject to capital gains tax, she adds.

While the tax community has welcomed the clarification around arguably the most contentious issue about cryptocurrencies – its nature for tax purposes – there are still significant areas of uncertainty.

The valuation of cryptocurrencies like bitcoin remains a point of major concern, Ram says. In a barter transaction, the value of the bitcoin used to pay for goods and services would need to be determined to calculate the income or gain (or loss). Under normal circumstances, the value of goods received would be easily identifiable, but with cryptocurrencies establishing the value would be much harder as it trades on various international exchanges and price levels can differ substantially.

“Bitcoin has this high level of volatility in and of itself and across exchanges there is no parity,” Ram says.

For example, bitcoin was trading at R84 500 around midday on April 9 on the South African exchange Luno, but at R84 000 on Ice3X. It was trading at around R82 130 on Bitfinex in Hong Kong and at R82 194 on the euro exchange Bitstamp. (The spot rand-dollar and rand-euro exchange rates were used to calculate the rand values.)

Ram says it remains uncertain which valuation Sars would find acceptable. Although it has confirmed that cryptocurrencies may give rise to gains, it didn’t clarify how it would value bitcoin for that purpose.

“At this point [it is] one of the issues and I can see taxpayers wanting to argue either way, but then Sars would need to clarify what level of valuation or what exchange and market would need to be considered in order to value the bitcoin in a barter transaction scenario.”

Another area of uncertainty relates to the VAT treatment of cryptocurrency transactions.

Sars has confirmed that the VAT treatment of cryptocurrencies would be reviewed and that it would not require VAT registration as a vendor for purposes of the supply of cryptocurrencies in the interim. This means that taxpayers don’t have to register for VAT if their cryptocurrency supplies exceed the compulsory R1 million threshold for the total value of taxable supplies during a 12-month period.

Ram says since bitcoin is not considered a currency, there is a possibility that it could be regarded as a “good” for VAT purposes. If this is the case, exchanges who supply bitcoin may have to levy output tax on it, which would increase the cost of doing business in the bitcoin ecosystem.

Clarification in this regard is quite urgently needed, he adds.

Chong says it is also uncertain how the VAT legislation on cryptocurrencies and the updated definition of electronic services that was published in February will reconcile. The latter regulations – which defines electronic services quite broadly – seem to include trading of cryptocurrencies by a foreign supplier.

“A bit more clarity is still required in terms of VAT. Where does cryptocurrencies fit in, whether or not trading in cryptocurrencies should be an exempt supply, who is the recipient for supplies to an exchange, and whether cryptocurrencies [are] ‘services’ in the VAT Act?”

AUTHOR PROFILE

COMMENTS   21

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

My wife is called Penny. It doesn’t make her a currency.

Crypo fanatics (highly correlated to conspiracy theorists) will be incensed about this article. The rest of us with even the most basic knowledge of tax will wonder what the point of the article even was.

Move on.

SARS claiming tax is stupid because crypotcurrency exists outside of SA jurisdiction. And SA gov provide nothing in return (no blockhain tech development or support). This is the reason all the newly minted multimillionaires are sending their funds to tax havens instead of bringing them back to SA.

“Crypo fanatics (highly correlated to conspiracy theorists)” ..remember all those crazy dotcom developers in the internet boom in 1999? remember how the dotcom crash caused >95% of companies to go bust and >95% of those developers to lose their jobs and many more investors to lose their money? remember how all the olschool commentators felt so vindicated “I told you so, I told you it was a fantasy/bubble”?

…Remember how the internet subsequently became the oil/life-blood of the global economy, remember how the internet became the backbone of *every* industry over the next 10 years? Remember how last month the tech sector became the worlds largest sector across every single major index (outstripping financials for the first time in history)? Remember how >95% of “crazy” ideas innovated during the dotcom crash actually eventually came true, became useful value-added benefits (cellphone banking, social media, shared media, global video-calling, online education ..online shopping ..find me a business that *doesn’t* have a website now!!)? Remember how those early innovators got new jobs and became rich? Innovation is supposed to be volatile. Even a bitcoin crash (which has actually just happened -60%) shouldn’t make you feel validated or vindicated because you clearly don’t understand the implications of decentralized governance: All major social systems will run on a blockchain based governance system. Yes that doesn’t mean Bitcoin is worth Rxxx but it does mean you shouldn’t write-off the technology because it will be a fundamental part of our world in years time.

Crypo exists outside of SA jurisdiction no more than my offshore portfolio does. It’s an asset that can go up or down in value and those gains are taxable in the hands of SA residents.

And blockchain is an important technology – but that’s not relevant to the tax debate.

my thoughts exactly….but they senselessly have to hammer on it. Best is they still don’t actually know how it works…ha ha!

And I remind you of this wonderful words Comrades and Fighters in our pursuit of Economic Freedom:

“The avoidance of taxes is the only intellectual pursuit that still carries any reward.” – JMK

If I hold or speculate with cryptocurrencies for fun and recreation and not in the pursuit of any income, my gains and losses are not subject to income tax.

So for majority still, tax does not apply.

Dispute.

True, but then we’re talking about insignificant gains: there’s a point at which your motive will be seen as one of profit making (intent, frequency, sophistication of strategies etc) – and the onus is on you to prove otherwise.

You don’t have to look far into the Income Tax Act. It’s section one.

It would appear that SARS wants to enjoy a tax advantage from these crypto currencies but have no idea how to get their grubby hands on what they consider their slice of the action.
SARS has lost most of its creditability and recently threatened all taxpayer who have failed to submit returns over the last 2 years – quite the ogre these days – so do they really think they will get a handle on profits from crypto currencies – I don’t think so

Your evasion is immoral – its a separate issue whether their collection is effective or whether the government wastes it once it’s collected.

In a parent child environment the parents set the standards of morality – if those standards are defective or deviate from other parents morality standards the child will function within the framework of their parents morality. So in essence the parents (government and SARS) are setting the morality standards and the child (taxpayer) functions within those standards

Given the quality and competence of SARS administration these days I doubt many taxpayers will pay much attention to these crypto currency rules.

It’s discouraging to see that the classification dismisses one key innovation which is an inherent problem with the existing system, trust. These systems haven’t come into existence as a means for integrating into the existing system, but rather as a successor to their short comings. Disclosing crypto holdings to the authorities is a huge consumer protection risk considering neither them, any government, bank or company has been able to protect from identity theft, a fundamental inherent problem of their system that is solved by #bitcoin (assuming you avoid custodial services and exchanges, but this is not a direct use case of the benefits of presented by the innovation). I would not be surprised if future data breaches become more prevalent following the instantiation of the AUTOMATIC EXCHANGE OF INFORMATION (FATCA AND CRS), which has lead to the sharing of your personal information with 50+ participating countries since 2015. Exposing such information could lead to personal liabilities and security risks if not secured and authorities held accountable for the protection thereof. The amount of information automatically exchanged is frightening, and disclosing such crypto assets would expose person to further risk of such information falling into the wrong hands and personal security.

FACTA
http://www.sars.gov.za/…/mod3rdparty/aeoi/Pages/default.aspx

SARS stance on tax treatment of cryptocurrencies
http://www.sars.gov.za/…/6-April-2018—SARS-stance-on-the-…

“Biggest ever SA data breach: 60 million ID numbers leaked on real estate server” – https://www.biznews.com/…/10/20/biggest-ever-sa-data-breach/

Relax. You don’t have to disclose anything other than what gains you’ve made.

This still equates to your holdings being unassociated to the existing data collected, which until declared pose no risk to you.

I’m not concerned about private keys, as those are held by the user, my concern is around the targeting of high net worth individuals as a direct result of such earnings being attached under a crypto currency classification. This is currently avoided by not disclosing such information at all.

Sorry? You’re worried about rich peoples’ tax returns being properly scrutinised? What planet do you live on?

Not quite – wealth tax is coming as soon as “Slanging Judge” Davis can bring it on (his personal letter in another financial publication). How the wild swings of Bitcoin etc will be treated by this is anyone’s guess. This talk of “morality”; were the apartheid laws “moral”? SA’s tax laws are little different IMHO.

It will likely be subject to (normal) Income Tax like a rental-property (and not the more favorable CGT), as it will be difficult to argue that it’s not all but speculative. Cryptos’ nature is active trading in 99% of cases.

As I know SARS, the following will likely be the end result (IF you declare it):
(i) when you make a healthy trading profit, you’ll end up paying income tax (at your marginal bracket rate), and SARS is happy.
(ii) if you declare a nice large loss (especially 3 out of 5 yrs) to get a refund for, SARS will find a way under Section 20A, and ring-fence it as a “suspect trade”. So your refund will be denied.

Regarding the uncertainties of VAT treatment, I would propose to SARS to contact the Bitcoin call centre. Bitcoin can then be requested to issue the relevant annual tax certificates, in line with each country’s tax-reporting format 😉

Ha….wait…..let’s all pay SARS in Bitcoin from crypto-profits!!! That will add to the confusion!

on the dot…they want to tax you on the ” investment ” income ( what Bitcoin is not supposed to be ) cause they can’t grasp the virtual concept of Bitcoin.

The Bitcoin phenomenon is much akin to a situation when the Kong’s New Cloths Coutorier is launching an IPO in infamous Amsterdam Tuilp Market

Load All 21 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

GO TO SHOP CART

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.17.0.2