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Sars clarifies its stance on bitcoin

Taxpayers have to declare cryptocurrency gains or losses as part of their taxable income.
Sars says the onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it was received or accrued. Picture: Shutterstock

The South African Revenue Service (Sars) will continue to apply “normal income tax rules” to cryptocurrencies such as bitcoin and has urged taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

The growing popularity of cryptocurrencies such as bitcoin and ethereum and the rollercoaster ride some of these have experienced over the past year, have increasingly resulted in questions about their tax treatment in the local context.

Sars previously indicated that it was in discussions with some of the top technology companies in the world to enable it to track cryptocurrency trades more efficiently.

“Increased attentiveness and speculation regarding the future of cryptocurrencies has prompted calls… to provide direction as to how cryptocurrencies should be treated for tax purposes,” Sars said in a statement on Friday.

It noted that the existing tax framework could be used to guide taxpayers on the tax implications of cryptocurrencies and that it was unnecessary to issue a separate Interpretation Note at this point.

“Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from Sars through channels such as Binding Private Rulings (depending on the nature of the transaction).”

‘Assets of intangible nature’

Sars said cryptocurrencies like bitcoin were internet-based digital currencies that existed in the virtual realm. A growing number of proponents supported its use as an alternative currency that could pay for goods and services much like conventional currencies.

Read: Bitcoin, the biggest bubble in history, is popping

However, the Income Tax Act did not define the word “currency” and cryptocurrencies were neither official South African tender nor widely used and accepted as a medium of payment or exchange in the local market.

“As such, cryptocurrencies are not regarded by Sars as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by Sars as assets of an intangible nature.”

“Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of ‘gross income’ in the [Income Tax] Act.

“Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under ‘gross income’. Alternatively, such gains may be regarded as capital in nature, as spelt out in the Eighth Schedule to the Act for taxation under the CGT paradigm,” it added.

Sars said whether accruals or receipts were revenue or capital in nature would be tested under existing jurisprudence (of which there was no shortage) and added that taxpayers were entitled to claim expenses associated with cryptocurrency accruals or receipts, provided it was incurred in the production of income and for purposes of trade.

The revenue authority said base cost adjustments could be made if it fell within the CGT paradigm.

“Gains or losses in relation to cryptocurrencies can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:

  • A cryptocurrency can be acquired through so called ‘mining’. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms. By verifying these transactions the ‘miner’ is rewarded with ownership of new coins which become part of the networked ledger.

“This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realised through either a normal cash transaction (as described in (ii) or a barter transaction as described in (iii) below.

  • (ii) Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions.
  • (iii) Goods or services can be exchanged for cryptocurrencies. This transaction is regarded as a barter transaction. Therefore, the normal barter transaction rules apply.”

VAT treatment

According to the 2018 Budget Review, the VAT treatment of cryptocurrencies would be reviewed.

“Pending policy clarity in this regard, Sars will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies,” it said.

Sars said the onus was on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it was received or accrued. 

“Failure to do so could result in interest and penalties.”

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SARS are in for a hiding to nothing on this issue, who in their right mind is going to declare their gains as income/revenue when a central register needs to be accessed and SARS haven’t tied up this side of the operation. How are they going to handle losses made by miners and are electricity, water light and office rental going to be allowable in those instances where the taxpayer does declare that crypto mining is part of their business model.
Given that SARS has been unable to nail the Zuma and Gupta clan for money laundering through FICA, what level of success do they have with these rather elusive items

not quite that simple.

Every year proplr declare what they made from consulting, share trading, interest, dividends, salaries, sheep trading, whatever.

other than salaries, interest, dividends SARS does not have a cross-check system. If queried the taxpayer must prove and substantiate. If put under magnifier he must explain the sources of his lifestyle – people don’t live in crypto or drive them.

So yes you could understate crypto income as easily as most other income, but it remains illegal and the co sequences are big.

…..I tend to agree with Grahamcr

The IRS currently can’t determine who is trading, as much (not all) is done in the dark-web for illicit means

And this is the purpose Bitcoin is used for, to transact anonymously

Other virtual currencies are surfacing, so TAX authorities are seeing a currency that has no central control. This could be a huge paradigm shift in the future of global transactions. Its going to give tax authorities the run around continuously

Johan – I don’t know about your share broker platform – but for years (circa 2005) my brokers have sent a statement of transaction to SARS covering purchases and sales. However what the transaction sheet does not show is when you purchased the shares that you sold during the current tax year so you are through their omission likely to be treated as a trader. 5 years ago I engaged SARS on this very issue as they deemed me to be a share trader which I disputed and my arguments were accepted however it did require taking along all relevant brokers notes to prove my case. The upshot of this is that now for the last 4 years I have been subjected to annual audits which is tiresome and a pain in the butt, however they are arrogant enough to tell you it is within their power to audit you every year if they so wish. They are certainly a hindrance to creating wealth and only share the gain but never the pain – just like medical aid

Graham, I have had one SA broker account at Investec since 87. You are correct in that with the tax statement goes your tax cost and realisations.

To date I have never been taxed as a trader – I declare them as capital but since I hold a very concentrated portfolio and trade maybe twice every three years I am comfortable that SARS would have a hard time tackling me as a trader. If they did and were succesful I would anyway not be in the kind of trouble compared to if I had not declared the gains as capital

When you say “audit” do you mean the requests for supporting documentation? That became a standard response under Moyane to delay refunds. An actual audit is a whole different kettle of sardines. They do a lifestyle audit to reconcile your income for the past few years with your houses, cars, spending, holidays, etc. they also do a FATCA request to every financial jurisdiction to pick up that trust or company, here and overseas. If you were a trust creator, beneficiary, company director, bank account holder anywhere you are toast. It also involves sworn statements that carry criminal sanction.

My point is many people understate all kinds of income and crypto is no different. It is also no different in regard law and unless you want to only accumulate crypto but never use it, you should not expect to get away with it when SARS decides to really take a look at you.

quote,
transactions in a computer-generated public ledger.

Reading the word transaction,it require two to make a deal.
Someone is receiving old fashion cash and give in return a modern one, called software.

Children, looking for a choice future good paying job, this is it!!!!
Grandma, some dads, will go for it.
Pretending they understand the stuff.
A cornerstone of pyramid builders planning to leave planet Earth.

I am glad they set out an official response, now we can focus on moving this technology forward.

MY QUESTION IS: How do they tax something they did not facilitate?

Are they gonna come after my stokvel…..?

They are dreaming, they cant even tax the minibus taxis……….

Will they also tax the street vendors, the intersection traders and the loans we give our friends and family with interest.

All they think about is how they can get more money out of the citizens only to give it to the Guptas and Swiss e-Toll collectors. Just to mention the two.

What a country we live in…. Morons for leadership.

I can’t understand why anyone thinks Bitcoin gains are any different from other capital gains. All these posts consider the (in)ability of SARS to detect the income. The issue is really one of morality: pay your tax! (And before anyone goes down the rabbit hole of SA government corruption and wastage, let’s keep this debate about Bitcoin – or else stop paying tax completely).

Along with (im)morality, the problem with crypo currency advocates is that they are generally a bunch of conspiracy theorist doom-mongerers – which is not a good place to start this debate.

Let’s assume I hold a basket of currencies of USD, GBP and EUR. Then let’s further assume I predict the USD will weaken so re-weight the currency basket in favour of GBP and EUR. As far as I understand there is no profit (CGT or Income) because it is not the sale of an asset.

Now we add Bitcoin, a virtual currency, into the basket at $5,000 / BTC. It rockets into the stratosphere and we sell out of BTC into USD when it hits $15,000. To me this is simply a re-weighting of the currency basket. SARS clearly don’t like it because a lot of people have made a lot of money this way so introduce terms like “intangible asset” to try and bring it into the tax net. Surely if BTC is a currency, there is surely no taxable gain here.

Any tax fundis that agree / disagree?

FYI SARS does tax realised gains on forex trades. The manner in which it is taxed, i.e capital or revenue in nature is entirely dependent on the circumstances and tested under existing case law.

It’s no more a currency than a betting slip for the 2.15 at Newmarket is.

The fact that SARS or SARB does not accept cryptos as a currency does not disqualify cryptos as a currency.

We have already seen VISA accepting and allowing payments via cryptos. Some big companies are already accepting payment via crypto. This to me shows that cryptos are a currency, just like ZAR. It is a matter of time before even SARS accepts crypto payments.

If I do not get taxed when the ZAR appreciated against the dollar, why should I be taxed when my cryptos appreciate in value and if the reason I hold them is to preserve my cash and earn decent interest on it?

SARS must focus on expanding the tax base.

Would you agree?

End of comments.

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