S.Africa’s GREEDY Black Government FOCUSING ON CRYPTO CURRENCY: SARS is setting its sights on taxpayers with these assets
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[SARS is the IRS of South Africa. Jan]There has been a boom in South Africans getting into the cryptocurrency market space, and it hasn’t escaped the South African Revenue Service’s (SARS’) attention.
Growing alongside this new wave of investors is uncertainty regarding the tax implications of these types of transactions.
Jashwin Baijoo, the head of crypto asset compliance at Tax Consulting SA, said that SARS is looking to take a tougher stance when assessing a person’s crypto trading activities and holdings.
Crypto assets have recently been defined as a financial instrument in South Africa, where the revenue service clarified that crypto asset profits/gains are subject to the normal rules of income and capital gains taxes.
Due to the unreported nature of these financial instruments, the onus falls on the taxpayer to declare proceeds from crypto asset transactions, said Tax Consulting SA.
According to tax experts, uncertainty arises when one has to determine whether profits accrued from transactions involving crypto assets, both on the platform and when realised for fiat currency, are capital or revenue in nature.
“This distinction is vitally important in determining, and in the instance of taxation, ensuring the correct tax treatment is applied per transaction,” said Tax Consulting SA.
After a person’s crypto asset is classified for taxation as either capital gains or income, there may be deductions available that the crypto asset can qualify for, depending on meeting certain requirements.
What SARS says
The taxman has outlined three scenarios in which crypto assets may attract distinct tax consequences, namely:
Goods or services being exchanged for crypto assets – If the transaction involves the crypto asset serving remuneration for services rendered or as payment of the purchase price for goods sold, this will fall squarely within the realm of income tax.
Mining – Essentially, the process by which new cryptocurrency is added to the blockchain, with the “miner” receiving ownership of the new coins. Tax Consulting SA said that newly mined crypto assets amount to an accrual or receipt of “trading stock”.
Best practice
Tax Consulting SA said that due to the intangible and uncertain nature of crypto-asset transactions, there is some disparity in market best practices, especially when considering the recent classification as a “financial instrument” under South African domestic tax laws.
“What can be confirmed as the practical best practice is to ensure pro-active compliance, albeit a difficult task in light of new regulations imposed by SARS,” said the tax firm.
“It may aid your cause to seek the guidance of a professional tax specialist in not only ascertaining the classification of specific crypto assets and transactions but also assist you in ensuring your tax submissions to SARS are wholly accurate,” said Baijoo.
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