The SARS spotlight is on cryptocurrencies. Are you playing by the rules?

Published on 30th June, 2021 at 07:53 pm

Cryptocurrencies have been around since 2009, and now, according to SARS commissioner Edward Kieswetter, SARS is clamping down on undisclosed cryptocurrency holdings. Here’s what you need to know to avoid hefty penalties.

Cryptocurrencies aren’t recognised as a currency in SA

“Because there are currently no laws or regulations governing the use of cryptocurrency in South Africa, crypto traders or users have limited legal protection according to the common law,” says Elani van der Westhuizen, a tax practitioner at TaxTim. This said, cryptocurrencies are still subject to general taxation laws, as there are no current tax laws that cover cryptocurrencies specifically.

You need to declare

You need to declare any gains or losses on cryptocurrency you own, regardless of whether it’s being set aside as an investment or being actively traded. Jaco Nel, director of NJN Auditing and Consulting Inc. says you need to declare on different parts of your tax return, depending on your intention for the cryptocurrency holdings. “If you hold cryptocurrencies as a long-term investment, then any gains or losses must be declared under the capital gains section of your income tax return,” he says. “If you are actively trading in cryptocurrencies, then any gains or losses must be declared under the Local Business, Trade and Professional Income section.”

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Keep a record of gains and losses

Since none of the existing cryptocurrency trading platforms provide taxpayers with an income tax certificate, it’s your responsibility to keep an accurate record of your holdings and any profits or losses for the current tax year, so you can declare accurately when you file.

Don’t miss out on a refund! Read this for four reasons why it’s important to file a tax return.

How you will be taxed

Your cryptocurrency holdings will be taxed depending on the section you’ve declared your holdings under on your tax return i.e. your intent for the holdings. “If you hold cryptocurrency as a long-term investment, then any gain on the sale of cryptocurrency will be treated as a capital gain,” explains Nel. “If you are actively trading or speculating in cryptocurrencies, then any profit made will be deemed to be income from a trade, and you will have to pay tax on the profit at your marginal income tax rate.”

Filing tax for the 2021 tax year will be different for some. Read this guide to file with confidence.

Prepare for penalties if you don’t declare

Since cryptocurrencies are still subject to standard tax law principles, there are consequences for not declaring holdings – and quite hefty consequences too. “SARS will charge a taxpayer penalties and interest on the late payment of any tax due from the non-disclosure of any income from cryptocurrencies,” says Nel. “The penalty can be between 10% and 20% of the tax due.” And if SARS has sufficient evidence to believe that you are intentionally evading tax, that penalty can soar to between 150% and 200%. Ouch! “Contrary to popular belief, there are ways that cryptocurrency investments can be tracked and traced,” says Nel. “Transfers to and from a taxpayer’s bank account to a cryptocurrency platform can be traced, and SARS is building technical expertise to increase their investigation capabilities,” he concludes.

TaxTim is an online eFiling tool that takes the work out of tax returns for you. Reality Health, Plus, Core and Club members get free access to the tool, valued at up to R629.