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South Africa issues guidance on crypto asset tax, but the taxman struggles 

Sars has created a special spot for declaring your held crypto assets.
Image: AdobeStock

On August 27, 2021, Sars provided further guidance on the correct tax treatment of crypto assets and how this must be declared in their returns. This took place in the form of a webpage published by Sars, entitled Crypto Assets & Tax. The publication should perhaps be seen best in context of the various comments made by Sars recently on the taxation of crypto assets, the perceived non-compliance by crypto asset holders and how serious Sars is taking non-compliance.

Sars has created a special spot for declaring your held crypto assets

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A common misconception is that where you have simply held crypto assets, but have not made any trades, you do not have to make any disclosure to Sars. The 2020/21 tax return requires that you must make a specific disclosure under the Statement of Local Assets and Liabilities section.

The consequence hereof is that all individuals who have acquired and held crypto assets during the tax year must disclose these holdings to Sars in their returns, regardless of whether any taxable events took place. This is easy to get wrong and taxpayers should be sure to tread carefully.

Where you do not make this disclosure, even negligently, this is now a criminal offense under the Tax Administration Act.

Confusion remains on Income Tax vs Capital Gains Tax

In countries where income tax and capital gains tax are subject to the same rate, the nature of trading vs investment is not important. In South Africa, the top marginal personal income tax rate is 45% and top marginal capital gains tax rate is 18%; therefore a point of great significance.

In Sars’s CGT Guide (issued November 5, 2020), it was mentioned that “[g]iven their extreme volatility, Cryptocurrencies are likely to be held as a speculative asset of a revenue nature”. This is probably generally true, but not always the case.

Despite this, the webpage information published earlier this week only gives examples of capital gains tax disclosures. There are no examples given of income tax disclosure, which means taxpayers may fall on the wrong side of the law by just following the guidance provided by Sars.

Sars’s reference to existing jurisprudence

The new publication provides no specific examples or guidelines on how this differentiation between revenue and capital is to be made. The statement is made that the answer will come from existing jurisprudence. This does not mean much, if anything, to a normal individual taxpayer.

Despite popular belief, the determination of revenue vs capital is not merely a function of the length of time for which the asset is held – one must consider various factors including the taxpayer’s intention. Court judgments have confirmed that there is no single test to be applied.

For example, in ITC 1525 (1991) 54 SATC 209 (C), the taxpayer held Krugerrands for a period of 12 years (for a rainy day) and eventually sold them in order to inject capital into a new business – the Tax Court found that this was subject to tax on revenue account and not CGT. This was similarly the case in ITC 1526 (1991) 54 SATC 216 (T), where the Krugerrands were held for up to 9 years as a store of wealth and protection from inflation.

Importance of compliance

There is no legitimate way for crypto asset investors to remain “invisible” from a Sars perspective and, while many may still be in denial of this, Sars will keep on getting sharper. Even where you fail to disclose correctly now, the non-disclosure is permanent and will come back in a few years to catch-up with the taxpayer. Sars has appointed specialists to deal with crypto assets, yet the market has not seen any prosecutions in this area of tax.

One thing is absolutely for certain, however – it is no longer enough to hide in plain sight. Crypto asset holdings (not just gains and losses) must now be declared in your returns, and we will soon start seeing the wheels of justice turn quickly for those who are slow to the uptake.

Thomas Lobban, Legal Manager: Crypto Asset Taxation.

COMMENTS   15

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When will Bedwetter and company get any money back from the Gupta’s ??

and this is the same entity that does not have the b??lls to tackle the taxi industry, but are losing billions on it – it has that typical government mentality of: “lets go for the soft targets, our normal source of income” but naively advertise “at your service” probably meaning; ” we want to sc??w to your last cent”

SARS is sooooo serious about Non compliance???? I still have not seen any arrest for STATE CAPTURE….

These are individual that looted R1 Trillion and not a cent could be recovered from SARS…. just seems mind boggling.

NOt a single cent retrieved from foreign bank accounts…. SARS surely sending the signal that they NOT serious about non compliance??????? or SARS is protecting Politically connected individuals

No, soft targets only with fixed addresses. Guptas have escaped Duduzane is living it up in Dubai with our money.

Remember, taxpayers are the enemy of the regime and are mere milking cows.

Hmmm… Local assets and liabilities?

To be taxed on possession of software, worth a fortune says bank, media,and other parrots, is a first one. By loosing the memory stick, or key to it, it is gone with the wind, again, like the tulip.

Good one, Bas. And very true. People have died and the key to the software never found, so what is the crypto worth then? Also, what’s with MW and the SARS warnings all the time, in various guises? Are you an agent of SARS now, appointed to scare the HNW readers of MW into submission? Bedwetter has no legitimacy as long as they chase 50 cents while the untaxed thieves speed by in their Lamborginis.

what if you lost your keys though? Do I get a tax deduction?

Exactly, and what exactly are you supposed to declare? Most of the time these things are bought as experiments, either lost and forgotten or it turns out to be a $hitcoin that crashed and burned. Not saying you can’t make money, but in my opinion a sell-event is the most logical and only thing that should be taxed.

SARS need to wake up. Putting something on a webpage is not quite the way to inform the public as to what is going on. You do this when you dont know what to do! TSK!!

SARS might be very surprised in the end that crypto might not be the golden goose they think it is.

If people trade it and are going to be taxed as revenue most people will hold and not trade. It is often mentioned that more than 90% of short term traders actually loose money. So they will have a huge cost in trying to administer something with little to show for it in the end in terms of taxes. The pro traders and whales will do their business offshore and most probably do already.

For the long term investors capital gains tax will have to be paid. Might also not be as lucrative as SARS might think. With this volatile asset first in first out will not be working well for investors and for SARS. So most will select specific identification. Depending on what gains or losses other assets achieved the taxpayer might select transactions that show a loss and “theoretically” write a loss off against other gains?? Even with first in first out transactions will often show a loss. It could end up being a loss for SARS.

I don’t think they have a clue as to what to do. It will end up biting them if they are not careful.

They will therefor most probably kill crypto for SA because of their greed and incompetence. I see crypto becoming an offshore investment like many other asset classes in SA.

Crypto is cash like having dollars, or Rands or pounds. I will declare it as cash. And like the value of a dollar goes up and down, so my crypto goes up or down. If they want to treat profits as income they need to allow the losses against your other income. It is actually irrelevant what SARS says, they are just a protection racket for a criminal government.

as usual sars only want to share in the positive profit side, but not so willingly when it comes to losses – one thing that they will have to understand is that covid 19 and (also the looting in gautang & kzn) caused massive losses, insured or not, in especially the mid size one man businesses – the same negative effect is going to flow through to sars in lessor tax income.
the attitude that i have experienced so far from sars was: “the looting is something of the past, covid 19 is under control, so everything as we see it is back to normal – cough up we need money”

“Where you do not make this disclosure, even negligently, this is now a criminal offense under the Tax Administration Act.”

– most ANC officials have committed a Criminal offense…. .and yet they walk freely

Surely this is against the constitution where one group are treated differently from another????

“Sars will keep on getting sharper.”

Sars knows Bull$4#T. … and no they not getting sharper.
SARS is being hijacked by these corporate TAx companies telling SARS what to do…. but neither knows how best to implement.

the technology is getting smarter than SARS and these Tax Companies

IF SARS were that smart…. Did they get any money from the Guptas… like the reader about mentions???? NO. SARS treat people differently (Politically connected vs Non politically connected) …

In this case there needs to be tax deductibility for the effects of inflation upon each individual. This should be determined in terms of the PV.

End of comments.

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