Bitcoin will be taxed by SARS

Today, those 10 000 Bitcoins would be worth more than US $100 million. Since Bitcoin, various other cryptocurrencies have emerged. Locally, the South African Revenue Service (SARS) issued a statement earlier this month that normal income tax rules will apply to cryptocurrencies and that affected taxpayers are expected to declare cryptocurrency gains or losses as part of their taxable income.

In a media statement, SARS says that “increased attentiveness and speculation regarding the future of cryptocurrencies has prompted calls for direction as to how cryptocurrencies should be treated for tax purposes. However, there is an existing tax framework that can guide SARS and affected taxpayers on the tax implications of cryptocurrencies.”

It is important to note that the word “currency” is not defined in the Income Tax Act (the Act).  Also, cryptocurrencies are neither official South African tender nor widely used and is accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). However, cryptocurrencies are regarded by SARS as assets of an intangible nature.

This means that cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of “gross income” in the Act. Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under “gross income”.

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.

When it comes to Capital Gains Tax (CGT), SARS says that gains or losses in relation to cryptocurrencies can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:

1.  A cryptocurrency can be acquired through so called “mining”. Mining is conducted by the verification of transactions in a computer-generated public ledger, achieved through the solving of complex computer algorithms. By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger. This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realised through either a normal cash transaction or a barter transaction. 
2. Investors can exchange local currency for a cryptocurrency (or vice versa) by using cryptocurrency exchanges, which are essentially markets for cryptocurrencies, or through private transactions. 
3.  Goods or services can be exchanged for cryptocurrencies. This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.

Sources: Forbes - https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/bernardmarr/2017/12/06/a-short-history-of-bitcoin-and-crypto-currency-everyone-should-read/&refURL=https://www.google.co.za/&referrer=https://www.google.co.za/

www.sars.gov.za

Disclaimer

^{This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser. Discovery Life Investment Services Pty (Ltd), branded as Discovery Invest, is an authorised financial services provider. Registration number 2007/005969/07.}