Cryptocurrencies such as bitcoin and ethereum will continue to be subject to normal income tax, the South African Revenue Service (Sars) said on Friday.
South African cryptocurrency holders are now expected to disclose past gains and losses from trading digital currencies.
That means currency investors will feel the heat: recent price spikes saw the kind of sales – and profits – that Sars expects to be disclosed.
Failure to disclose cryptocurrency-related taxable income in the relevant tax year could result in building up interest and penalties, Sars said.
Cryptocurrencies must be declared as property – and not a currency like the rand.
Although cryptocurrencies are not regarded as currency in the true sense of the word (widely used and accepted as a means of payment) in South Africa, the tax authority regards them as an intangible asset. That makes crypto coins similar to shares. And that means any South African investor who spotted an opportunity from Bitcoin’s sharp decline in value earlier this year, bought low and then sold after a month or two, is liable for tax on the ordinary-income scale.
Gains over a longer period are subject to capital gains tax instead.
A South African investor who bought one bitcoin in 2012, for instance (when it was priced at a mere $13.51, or R114.66 in 2012 exchange rates) – then sold it at $19,843.11 on fears of a digital currency bubble busting – would have gained R268,080.41.
Because the asset, the bitcoin, was held for longer than a year, the transaction would fall under capital gains tax rather than income tax, similar to selling a house or share that had appreciated.
“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,” Sars said.
Not recognising digital currency as money yet allowing its use to make payments like on Takealot poses a grey area.
Indirect tax specialist at Deloitte Africa, Severus Smuts tells Business Insider South Africa that “you have to ensure that when you receive one of the cryptocurrencies as payment, the product that is supplied in exchange for the cryptocurrency is compliant with value-added tax (VAT).”