The crypto industry’s rapid pace of development has left many South Africans unsure of where they stand. Whether hype or reality – and, often, it’s a bit of both – the stories we read online and the conversations we hold over the braai can leave us unsure of what to think, what to take seriously and what to disregard.
In this article, CH Consulting debunks five myths surrounding crypto taxes in South Africa. Brace yourself for a healthy dose of reality as we clear up any misconceptions you may have about crypto assets’ taxable status, the less well-known tax-triggering events, the traceability of your transactions, the utility of crypto tax software, and more.
Crypto tax myth #1: South Africans don’t have to pay tax on crypto.
That would be nice, wouldn’t it, but it’s not how SARS sees it at all!
You still hear it occasionally. A colleague or acquaintance asserts matter-of-factly that “crypto is not taxable” or that “nobody knows how to tax it”. We don’t want to be the bearer of bad news, least of all at a braai, but let’s bust this myth once and for all: you’re 100-percent on the hook for any profits you’ve made from crypto.
Crypto assets have always been taxable in South Africa, because they’ve been classed as “intangible assets” from day one.
If you don’t believe us, here it is straight from the horse’s mouth:
“Normal income tax rules apply to crypto assets and affected taxpayers need to declare crypto assets’ gains or losses as part of their taxable income. The onus is on taxpayers to declare all crypto assets-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”
What is more, SARS says crypto assets have always been taxable in South Africa, because they’ve been classed as “intangible assets” from day one. Your historical crypto profits and losses must be declared by re-submitting your old tax returns.
Crypto tax myth #2: Tax is only payable on crypto-to-fiat transactions.
False. Tax could be payable long before you take the off-ramp to the world of rands and cents.
SARS has perhaps not communicated clear-enough guidelines on this one. Too many people believe that tax is only payable on crypto-to-fiat transactions. Whether you’re just experimenting with crypto, an avid trader, or a miner, it’s important for you to know that cashing out is not the only way to ring up a tax bill in South Africa or anywhere else.
Here are five other types of crypto-taxable events:
- Crypto-to-crypto trades resulting in profit
- Crypto mining rewards
- Staking and masternode rewards
- Airdrops and forks
- Initial coin offerings and token sales
Bartering your cryptocurrency for goods and services – exchanging it directly for something else, without involving fiat currency – can also have tax implications in South Africa. In such cases, the fair market value of the goods or services received in exchange for the cryptocurrency is treated as taxable income. Taking crypto assets as payment for goods or services is similarly subject to income tax in the country.
Crypto tax myth #3: SARS can’t track your crypto transactions.
Wrong. Your transactions aren’t just traceable; they’re traceable back to you.
By design, every one of your crypto transactions is recorded, publicly and forever. Your name is kept off the blockchain, of course, and, in this state, your identity may remain private to a greater or lesser degree, but it isn’t undiscoverable. Not by a long shot.
Nearly all crypto journeys involve an on-ramp via an internationally mandated KYC exercise.
For SARS, putting a name to it can be as simple as receiving notice in an automatically generated tax form from your exchange, by using AI-powered transaction tracking software, or by getting a subpoena. Nearly all crypto journeys involve an on-ramp via an internationally mandated know-your-customer (KYC) user identification exercise.
This personal information can be made available to governments, routinely or if they have special reason to suspect you are involved in tax evasion or money-laundering. Exchanges and brokers are, in any case, compelled to share certain crypto transactions with tax authorities, providing details about the parties involved and the transaction amounts.
SARS says that, “Enforcement and audit processes are confidential and not shared with members of the public”. It’s, however, very likely to be partnering with private firms like Chainalysis, a specialised software provider that helps the US Inland Revenue Service and other tax authorities connect real-world activities to blockchain transactions and identify the owners of crypto wallets.
Crypto tax myth #4: All you need is crypto tax software.
Not in reality. Software can help, but it won’t do everything you need.
Listing your digital assets and relevant crypto transactions is not as straightforward as you’d think. Sure, they’re there for all to see on the blockchain, but it isn’t a simple cut and paste to gather and present it, especially if you are dealing with lesser-known chains or multi-chains.
Retrieving and tracking the data can be time-consuming and is prone to errors. Some people may use multiple wallets or use different exchanges, making it challenging to consolidate and accurately report all transactions. The data obtained from exchanges or wallets may also not always be presented in a format suitable for tax calculations, requiring manual intervention and data manipulation.
Tax can be seriously inflated without manual intervention by a professional based on their experienced interpretation of the law.
Assessing your tax obligation based on an interpretation of the law is another story entirely. Different tax rules – governing short- or long-term capital gains, for example – may apply when it comes to doing the actual mathematics. These calculations require a deep understanding of tax laws and reporting requirements, and incorrect interpretations of the rules can result in errors.
In many cases, tax can be seriously inflated without manual intervention by a professional based on their experienced interpretation of the law.
Crypto tax myth #5: You only have to reconcile data for the year you’re filing.
It would’ve been a different ball game if this were the case. Unfortunately, it isn’t.
When calculating capital gains, it’s essential to know the original cost basis of the crypto assets in question, which is the price at which they were acquired. However, that historical data may not be readily available or easily consolidated, especially if the individual has been trading or holding crypto for several years. Forks and airdrops further complicate the task.
Let’s say you started trading in 2016 and only declared taxes in 2022. All your transactions from all wallets in the intervening years need to be summarised to determine your tax liability now or in any other tax year.
We speak your language
CH Consulting’s crypto tax specialists are passionate about crypto, DeFi, and going bankless. We understand the technology, the ecosystem, and the culture.
More to the point, we have the knowledge and experience of South Africa’s tax regime to navigate you through the complex business of crypto tax reporting in pursuit of the best possible outcomes. You can rely on us for all of your on-chain tax and accounting needs. Contact us today.