Space for your Crypto Assets in Tax Return

According to SARS guidelines, ‘cryptocurrencies’ are neither an official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded as a currency for Income Tax or Capital Gains Tax (CGT) purposes. Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.

The ordinary rules of disposal contained in South Africa tax legislation provides that a disposal is any event which results in a transfer of an asset. Given the wide meaning attached to the disposal of an asset, even where one to convert from one cryptocurrency to another, that conversion would result in a disposal of an asset which would trigger corresponding tax consequences.

Generally, the accepted rules are as follows:

  • If you are making profits from trading cryptocurrencies, this will be taxed as income at your personal income tax rate (maximum of 45% in the case of a natural person);
  • If you buy and hold cryptocurrencies for intended long-term growth and then sell, this will be taxed as capital gains (maximum 18% in the case of a natural person).

To ensure that profits are taxed on a CGT basis, taxpayers would need to showcase objective factors that support their subjective intentions.

For example, the time for which the cryptocurrencies were held, the reason for disposal and how frequently cryptocurrencies were bought and sold.

Thus when completing your tax return:

  • Trading profits or losses must be declared in the ‘Local business trade and professional income’ section of the income tax return.
  • Any gain or loss realised on the disposal of cryptocurrencies which were held for intended long-term growth must be declared in the ‘capital gain/loss’ section of the income tax return.  

Whilst current legislation is potentially adequate to address the taxation of cryptocurrencies, it is not unforeseeable that specific legislation may be promulgated.

The end all, you have to make provision and see to include cryptocurrencies in your tax return, be it by income or of capital nature.

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