In South Africa, cryptocurrency is taxed, but there are certain rules that come along with it. South Africa is home to the world’s most reputable cryptocurrency users. 13% of the internet users in South Africa use or own Cryptocurrencies. With cryptocurrency becoming more and more popular in South Africa, it is said that crypto traders in South Africa may have to prepare for stricter taxes.
It would be quite efficient for traders to pay taxes through crypto, but there are certain requirements for that, and your trade doesn’t exactly go into tax. If you want to learn more about Cryptocurrency in South Africa and if you should pay taxes on crypto trading, read further below.
Crypto Taxes in South Africa
According to the South African Revenue Service (SARS), Cryptocurrencies like Bitcoin are considered assets of an intangible nature. This is in contrast to property or currency. This means whatever income you acquired or received from cryptocurrency comes under “gross income,” as mentioned in the tax act. Some crypto gains can be considered as capital, depending on the circumstances. This was written in the Eighth Schedule to the tax act.
Nevertheless, the crypto tax rules in South Africa allow deducting costs. So, for instance, when it comes to income, taxpayers could claim all their expenses on their tax. When it comes to Capital Gains Taxes (CGTs), the price you purchase cryptocurrency at is also considered as your taxable amount. Therefore, this way, you only have to pay for capital gains on any appreciation made through cryptocurrency
SARS Role in Cryptocurrency Taxes in South Africa
Cryptocurrency transactions are most likely tracked by SARS, as in 2020, many media sources showcased SARS wanting to expand their detection services and, of course, Cryptocurrency audit. SARS has publicly listed employment opportunities that move towards crypto tracking. According to the tax guidelines of 2018, SARS had a lot to say regarding Bitcoin and how they have contributed to a wide range of collection powers when it comes to the Income Tax Act.
In the guidelines provided by SARS, they clarify how taxpayers are subject to penalties if they treat Cryptocurrency transactions inconsistently with the South African tax laws. This is clearly stated in section 223 and chapter 16 of the 2011 Tax Administration Act.
Capital Gains on Crypto Taxes
The crypto guidelines by SARS also specify how investors are allowed to exchange local currency for crypto or vice versa by using Cryptocurrency exchanges. These are markets based on private transactions and Cryptocurrencies. These transactions are characterized as normal cash transactions by SARS and are to be reported on the Provisional Tax return (IRP6).
When it comes to taxes, and you trade on short-term activity with the purpose of gaining daily wages, that is categorized as deemed income. If you have long-term investments that are over three years, those fall into capital gains taxes. To document our transactions, conventional receipts and invoices are adequate proof as SARS doesn’t need any more scrutiny for crypto transactions, but they do require it for receipt activity or normal payment.
The agency also stated the different accounting methods that they accept, such as the crypto purchase price, which is stated on the date of the accrual and of the receipt earlier. This means that accounting method such as the lasting, first-out (LIFO), and average cost are not accepted and should not be used by traders. When it comes to being of a conservative nature, the first-in, first-out method is ideal for this situation. However, specific identification will not be removed b the tax rules.
Crypto Mining Taxes in South Africa
Crypto miners in South Africa are taxed the moment they acquire cryptocurrency that aligns with income taxes. People with mining taxes, also known as miners, are rewarded with new coins as they become part of a networked ledger. Mining activities involve constructing transactions on a computer-generated ledger. For tax purposes, SARS treats the receipt of cryptocurrency through mining as income.
Hopefully, with the help of this article, you are now are of the laws on paying taxes on crypto trading in South Africa. It is important to keep up with SARS’ changing trading and tax laws. If you want to learn more about crypto trading and taxes in South Africa, click here.