What is a crypto asset?
A crypto asset is a digital representation of value that’s not issued by a central bank but is traded, transferred and stored electronically by natural and legal persons for payment, investment and other forms of usage. Crypto applies cryptography techniques in the underlying technology — for example, Bitcoin or Ethereum.
How are crypto assets taxed?
The South African Revenue Service (SARS) has made it clear that crypto assets are subject to tax in line with existing tax law. However, taxpayers are often under the impression that they will only be subject to taxation when they have withdrawn the crypto assets from the exchanges into their bank accounts. They don’t take into account the transactions on the exchange itself.
The SARS crypto asset FAQ guide states that when a crypto asset is disposed of, it will be subject to either capital gains tax or income tax. There is no set and delineated rule to determine whether a receipt will be capital or revenue in nature. This requires a consideration of the existing legislative provisions and case law. It’s an important consideration as capital gains are taxed at a maximum rate of 18%, whilst income can be taxed anywhere up to 45% (depending on your tax bracket). The SARS FAQ guide further states that crypto transactions such as mining, remuneration, and payments for goods or services will give rise to income tax.
Any income, gains or losses must be declared in your tax return. Often, taxpayers undertake a large volume of trades, so it’s important to keep track of these transactions to undertake the necessary calculations. In the FAQ guide, SARS states that conventional receipts and/or invoices would provide proof of purchase and sale prices. It’s recommended that these contain detailed information such as:
- the type of crypto asset;
- date of the transaction;
- type of transaction (for example, received or disposed of);
- number of units;
- value of the transaction;
- total units of each crypto asset held at the beginning and end of the tax year; and
- wallet addresses.
Taxpayers must keep all supporting documents for five years from the date of submission of their tax return, as SARS may request these documents to verify the information declared.
Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts at AJM Tax share their tips and explanations on tax issues. Learn everything you need to know about tax, from deductions you never knew about to retirement savings and capital gains. The first Tuesday of every month is Tax Tuesday.