The tax authority of South Africa has warned taxpayers in the country against forgetting to report all their cryptocurrency transactions. However, it also presented a framework with a few positive points for those trading cryptocurrencies such as the ability to claim expenses and losses.
Not Legal Tender, Still Taxable
The South African Revenue Service (SARS) announced on Friday that it expects everyone to declare cryptocurrency gains 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.”
The SARS acknowledged that it faced many calls from the public to provide direction on how to treat cryptocurrency tax reporting but says that a separate interpenetration is unnecessary for now. Instead it tried to explain how it falls under the current framework. Anyone who is uncertain about specific transactions involving cryptocurrencies may also seek guidance from the agency.
The Existing Tax Framework
The agency explains that cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax, rather they are regarded as “assets of an intangible nature.” And, that “Whilst not constituting cash,” income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”. When goods or services are exchanged for cryptocurrencies, transactions are regarded as a barter.
On the positive side, South African taxpayers are also entitled to claim expenses associated with cryptocurrency accruals, “provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.” Additionally, SARS will not require VAT (Value-Added Tax) registration as a vendor for purposes of the supply of cryptocurrencies in 2018.
While SARS now says the onus is on taxpayers to report cryptocurrency transactions, traders should not assume it is not looking for other way to find out about them. Back in December 2017 we reported that SARS was exploring ways to track and tax bitcoin trading. The agency held talks with tech companies offering to implement transaction tracking solutions for it.
Is it fair for the SARS to demand income tax payments on cryptocurrencies while not recognizing them as legal tender? Share your thoughts in the comments section below.