Posted 2 June 2020 underTaxTim’s Blog
As most of us realize by way of now, cryptocurrency is not actual however digital cash.
Any profits received or amassed from cryptocurrencies are taxable because SARS sees cryptocurrencies as intangible property. When affirming your cryptocurrency, the biggest question you want to ask if it’s miles the character of revenue or capital.
It is critical to take note that SARS were granted sturdy series powers to request records from more than one third events that falls in the phrases of the Income Tax Act. This means that despite the fact that they do no longer have direct records on your crypto dealings, they nonetheless can come to the conclusion which you have earned different profits which may be crypto profits.
SARS will issue an extra assessment to include cryptocurrency if they arrive to a end that you earned crypto income. These checks may additionally consist of penalties and interest. If the assertion is incorrect, you are capable of dispute it but the onus is on you to show to SARS the actual reflection of your profits earned with the relevant supporting files.
There are three types of cryptocurrency transactions:
The Process of Mining
Purchase of Goods and Services with Cryptocurrency
The Trading of Cryptocurrencies (Including purchase for buying and selling & long time investment)
To determine the nature of your cryptocurrency income as follows:
Are you actively trading with cryptocurrency?
Did you purchase the cryptocurrency as a long-term investment?
Did you buy the cryptocurrency greater than 3 years ago?
The above desk is a completely huge manner to determine the character of cryptocurrency profits. Each case ought to be reviewed personally to decide if the gain/profit ought to be classified as normal earnings or capital profits for tax purposes.
SARS offers little guidance on how you will be taxed if you mine your cryptocurrency. The assumption is that the crypto earned thru mining will robotically be visible as buying and selling after which if it’s far offered/traded you may additionally need to claim the income which may be taxed as ordinary earnings or capital gains relying on the state of affairs. Hopefully there will be extra rationalization on this quickly.
Income obtained from buying and selling with cryptocurrency.
Proceeds from selling the cryptocurrency.
All Electric Bike Conversion fees that have been incurred to supply the cryptocurrency earnings
Base cost of the cryptocurrency.
Included to your general taxable income so as to be taxed as in line with ordinary tax tables.
It can be introduced to the entire of capital profits for the year less R40 000 annual exclusion after which forty% of the balance may be introduced for your taxable income with a view to be taxed as in step with ordinary tax tables.
Loss will most possibly be ring-fenced until you may show you are trading as a business.
Will be set-off in opposition to different capital profits from other property.
The purchase price is decided at the date of the earlier of receipt and accrual. Cryptocurrency is not seemed as a percentage and consequently SARS does now not deal with it as the average for the year.
It is vital to be aware that if youare actively trading cryptocurrency, the loss on cryptocurrency can be ‘ring-fenced’ and you will only be able to set it off against future cryptocurrency earnings. This is because SARS considers cryptocurrency buying and selling as ‘suspect’ trades which may be perceived as ‘pursuits’, unless it may be confirmed otherwise.
For greater details about ‘ring-fencing’ please read our blog here.
How do you break out the suspect change mark?
You will want to prove to SARS which you are trading as a commercial enterprise and no longer buying and selling as a interest. This could include all of the following factors:
Your cryptocurrency charges must be in share in your gro
ss cryptocurrency earnings. i.e you will be seen as a high danger/’suspect’ exchange in case your cryptocurrency costs are a large total at the same time as you handiest acquired a bit gross cryptocurrency earnings.
You need to have the ability to reveal how and where you have advertised and offered your cryptocurrency.
You have to be trading in a industrial manner. Factors to be considered includes:
Number of full time employees, aside from personnel presenting services of a home or private nature (for example domestic servants and residential gardeners)
Trading from a commercial assets and the commercial enterprise-like nature of its look
The extent of the usage of equipment used exclusively for the alternate
The time you spend trading at the premises
The wide variety of tax years you made assessed losses as compared to the total tax years you were buying and selling with cryptocurrency
Your business plan that consists of your concerns on a way to hold losses at a minimal and to alternate at a income.
The quantity of ways you operate cryptocurrency for alternate and now not use it for private use.
Are there any VAT outcomes?
No, there are no VAT effects for cryptocurrency considering it is visible as a economic tool that’s an exempt supply.
A quick instance for you:
You bought your 1 Bitcoin for R145,000 on 20 February 2020.
Let’s examine three different purchase situations.
a. 3 May 2019 for the amount of R86,000b. 13 August 2019 for the quantity of R164,000c. 7 January 2016 for the amount of R7,000
Answer:a. This bitcoin sale can be visible for trading functions due to the fact that it become bought within 12months of purchase.
= Income – Cost= R145,000 – R86,000= R59,000 income that you may delivered for your general taxable income for the 2020 tax 12 months.
b. This bitcoin sale could be visible for buying and selling functions due to the truth that it changed into offered within three hundred and sixty five days of purchase.
= Income – Cost= R145,000 – R164,000= R19,000 loss with a purpose to reduce your overall taxable earnings for the 2020 tax 12 months.
(Important to observe that if you aren’t trading as a enterprise, the assessed loss can be ‘ring-fenced’ and carried ahead to be utilised towards future crypto earnings)