SARS to apply normal income tax rules for cryptocurrencies

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The South African Revenue Service (SARS) will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.

The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued.  Failure to do so could result in interest and penalties.

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).

Increased attentiveness and speculation regarding the future of cryptocurrencies has prompted calls for SARS to provide direction as to how cryptocurrencies should be treated for tax purposes. However, as indicated in this media statement, there is an existing tax framework that can guide SARS and affected taxpayers on the tax implications of cryptocurrencies, making a separate Interpretation Note unnecessary for now. 

Cryptocurrency (typified by Bitcoin) is an internet-based digital currency that exists almost wholly in the virtual realm. A growing number of proponents support its use as an alternative currency that can pay for goods and services much like conventional currencies.

In South Africa, the word “currency” is not defined in the Income Tax Act (the Act).  Cryptocurrencies are neither 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 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 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.

Determination of whether an accrual or receipt is revenue or capital in nature is tested under existing jurisprudence (of which there is no shortage).

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.

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About Author

Thabo Mphahlele is the BizNis Africa Head of Sales and Marketing. Mphahlele was previously MultiChoice Production Support Analyst responsible for developing and monitoring applications. In addition, Mphahlele develops and automates batch scripts and is responsible for the daily infrastructure maintenance at MultiChoice. As a Production Support Analyst, he is responsible for incident analysis solving , developing and constructing business reports for SQL and Oracle and implement change controls for the business. Additional responsibility includes monitoring system performance via SOA, Kibaba (Elasticsearch), H.P BSM, HP Sitescope. Mphahlele is responsible for creating infrastructure performance reports through HP Ops Analytics, monitoring payments via Splunk and in-house built-in tool and disaster recovery simulation and testing. At Nashua Mobile, he was responsible for application development and enhancing the web sites At South West Gauteng College, he was the IT Technician and Network Administrator. During his tenure at Double Digit Media, he was he focused on application and web site development for new and existing clients Mphahlele contributes as a Content Manager for BizNis Africa.

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