Wondering if you have tax payable on your crypto? The short answer is, maybe. Wondering if you should be declaring this on your income tax return? The answer is, definitely!
Working with various entrepreneurs and investors, this question has been coming up more often in recent months, especially as the tax season draws near. In fact, type ‘SARS cryptocurrency’ into your browser and you will see over 4 million results.
As SARS rears its powerful head once again, cryptocurrency is firmly set in its sights. Some taxpayers have already received letters from SARS regarding their cryptocurrency holdings.
South African residents are taxed on their worldwide income, this includes cryptocurrency gains or income. To avoid penalties, interest, a fine or jail time - the onus will be on the taxpayer to provide complete and accurate data to SARS when disclosing this on their income tax return. It is a criminal offence to willfully withhold information or make false declarations to SARS.
So what does this mean for you and your crypto? As with trading stocks and shares, SARS makes a distinction between transactions that are revenue or capital in nature. In more plain terms, whether you are actively trading for profit (like a stock broker), or just holding crypto as an investment (like a more regular stock investor).
In the case where you were actively trading cryptocurrency, this will likely be seen by SARS as a trade, which would be added to your gross income and taxed at your personal income tax rate, less any allowable deductions. You will also be required to register as a provisional taxpayer.
If you held cryptocurrency as an investment and made a disposal during the year of assessment, you would need to disclose this as part of your capital gains. There is an annual R40 000 exemption for individuals.
Even if you did not dispose of any investment cryptocurrency but purchased one with another, this will be seen as a deemed disposal carrying notional profit or loss and will need to be disclosed as part of your capital gains.
You will also need to keep a record of the base or purchase cost in order to calculate any gains or losses. Basically, you must keep track of every transaction, regardless of whether you are actively trading or holding as an investment.
As each taxpayer’s situation is unique, it is advisable to speak to your tax practitioner before making any submissions to SARS.