As South Africa’s 2024 tax deadline approaches on October 21, crypto asset holders face growing pressure to fully understand their tax obligations under the guidelines set by the South African Revenue Service (SARS). While cryptocurrencies have become a popular form of investment and trading, the tax implications remain a point of confusion for many.
According to Christo de Wit, South African country manager at Luno, a licensed financial services provider, “Luno is not a tax advisory service, but we take proactive steps to help our customers learn more about their obligations as crypto asset holders. SARS has provided some guidance on the taxation of crypto assets, but many still make mistakes that can result in penalties or non-compliance.”
Common Misconceptions in Crypto Taxation
A widespread misconception is that blockchain transactions are anonymous and can evade tax authorities’ scrutiny. However, Wiehann Olivier, partner at Forvis Mazars and fintech and digital asset lead at Forvis Mazars South Africa, clarifies: “Most blockchains are public ledger, meaning all transactions are visible and immutable, meaning they cannot be deleted. SARS may engage with exchanges and request transactional data, as well as data-matching techniques to trace transactions back to taxpayers and they can go back further than five years.”
Crypto exchanges operating in South Africa are required to comply with regulatory obligations, meaning they must provide information to SARS upon request. However, this does not mean that SARS has unrestricted access to an individual’s crypto assets or transaction data.
Another area of confusion is around taxable events. Many believe that only converting crypto to fiat currency, such as the South African Rand, triggers tax liabilities. But according to SARS, any crypto transaction — whether it’s trading one crypto for another or using it to purchase goods and services — is considered a taxable event.
Trading vs. Investing: Understanding the Tax Differences
The distinction between trading and investing in crypto plays a crucial role in determining how taxes are applied. Dale Russel, Director of Trustreserve Solutions Limited and Moore Blockchain and Digital Assets JHB, explains, “Traders — individuals who frequently buy and sell crypto for short-term gains — are taxed on their profits as regular income. In contrast, investors holding crypto for long-term appreciation are subject to capital gains tax, which is lower but only applies to 40% of the gain, less an annual exemption of R40,000.”
SARS may also classify individuals as both traders and investors, depending on how they manage their crypto assets. Jashwin Baijoo, Associate Director and Head of Crypto Asset Compliance at Tax Consulting South Africa, states, “It’s important to highlight that an individual can be viewed as both a trader and an investor by SARS, depending on the nature of their behaviour with crypto assets and transactional frequency.”
For example, if someone holds 5 ETH, with 3 ETH staked and untouched, the original staked amount may be seen as capital and therefore subject to capital gains tax when eventually sold. The rewards generated from staking, however, are treated as regular income and taxed as such. Meanwhile, the profits from trading the remaining 2 ETH would fall under income tax.
The Importance of Accurate Record-Keeping
Proper record-keeping is key to staying compliant with SARS. The revenue service requires that detailed records of crypto transactions, including acquisition and disposal dates, amounts, and transaction types, be kept for at least five years. These records are crucial for accurate tax reporting, and failing to maintain them can lead to discrepancies during assessments.
Additionally, many individuals overlook the tax implications of earning crypto through activities such as mining, staking, or airdrops. Any crypto earned in these ways is considered income at the time of receipt and is taxed based on its fair market value in South African Rand.
Seek Professional Advice
With the complexity of crypto taxation, experts recommend seeking advice from professionals familiar with both tax regulations and digital assets. De Wit concludes, “Luno provides downloadable statements to assist users in tracking their crypto activity for tax purposes. We encourage users to consult with a tax professional who understands the complexities of crypto assets taxation to ensure accurate reporting.”
With the right knowledge and preparation, crypto holders can meet the upcoming tax deadline and avoid any legal or financial pitfalls.