Crypto versus the Tax Man
For the average person who invests in Crypto Assets, it is not as “secret or private” as you are led to believe. Normal income tax rules apply to crypto-assets, and you need to declare crypto assets’ gains or losses in your taxable income.
Are you aware that SARS has a memorandum of understanding with the main crypto platforms which grants them access to 3rd party data?
What people don’t realise is that SARS enforces late penalties and if you don’t declare on time, all your profits could be paid to tax or even worse you get a criminal record! Bullivant Accounting and Tax Services advice is to declare it before SARS finds it!
When you trade on the various Crypto Currency platforms there are various tax treatments, and this will have an impact on your profit. A Typical transaction will be taking your FIAT currency (Rand) and converting it to dollars and then purchasing your crypto asset (Crypto Coins/token).
When investing on the Crypto platforms, you have a choice of the type of Crypto Wallet to use. It can be as simple as you are buying into static units (your units remain unchanged – only the value rises and falls), stacking units (earn passive income by using certain cryptocurrencies to help verify transactions on a blockchain network) or interest/rewards-earning units. You could also mine the units yourself.
Before you sign up as a “crypto trader” or experiment with buying some cryptocurrency you should familiarise yourself with some of the tax implications:
Regular income earned or accrued from crypto-asset transactions will be taxed as revenue and are to be included in your taxable “gross income”.
Crypto Assets can also be seen as Investments and the sales of a unit could be subject to capital gains tax. (The 3-year investment rule for shares does not apply to Crypto assets).
Crypto trading falls into trading income, you are allowed to claim the costs incurred to generate the sell, the net income / (loss) is subject to income tax. Be mindful, that any “interest” earned does not qualify for the local investment allowance and the trading loss maybe ringfenced, as it falls under “suspect trades” by SARS.
Crypto investments that are realised after a long period of time may be considered Capital in nature, and subject to Capital Gains Tax and only the inclusive portions are included in your taxable income.
Keeping track of the purchase price and exchange on the day your crypto asset is purchased is important to determine the best tax treatment.
Bullivant Accounting and Tax Services can help you unpack your crypto assets and come clean with SARS. If necessary, apply for the SARS Voluntary Disclosure Process (VDP) if you have understated your taxable income in prior tax returns and wish to not have criminal prosecution for a tax offence.
Don’t let your crypto-asset gains work for the tax man!