In this blog post, we answer three questions posted on the Fat Wallet Facebook community page.
Q: If you have a capital loss, do you need to declare it in your tax return? Or is it optional?
When a capital loss arises for a year of assessment, it is not optional for a taxpayer to decide whether to declare that loss or not. A taxpayer must declare every disposal of an asset in their tax returns, whether that disposal realised a gain or not. The advantage in declaring a capital loss is that it can be offset against any capital gain realised in the current year or future years of assessment.
Q: If I was converting one cryptocurrency into another would this be considered a taxable event? Or is it only taxed when you withdraw it as rands?
According to SARS guidelines, cryptocurrencies are neither an official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded as a currency for Income Tax or Capital Gains Tax (CGT) purposes. Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.
The ordinary disposal rules in the South Africa tax legislation provides that a disposal is any event which results in a transfer of an asset. Given the wide meaning attached to the disposal of an asset, were one to convert from one cryptocurrency to another, that conversion would result in a disposal of an asset which would trigger corresponding tax consequences.
On Foreign Exchange gains and losses
When an individual disposes of an asset for proceeds in a foreign currency, after having incurred costs with regards to that particular asset in that foreign currency, the capital gain or loss on disposal of that asset must be calculated in the foreign currency. The capital gain or loss must then be converted to rands based on the average exchange rate for that year of assessment or by applying the spot rate on the day on which the asset was disposed.
Being tax efficient is an important part of great financial management. In this blog, a group of South African tax experts 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. Don’t miss it!