Crypto Taxes South Africa: What You Need to Know

Crypto assets are becoming more popular and widely used in South Africa and around the world. Whether you are an investor, a trader, a miner, or a business owner, you need to understand the tax implications of your crypto activities and how to comply with the South African Revenue Service (SARS).

In this article, we will provide you with an overview of the tax rules and obligations that apply to crypto assets in South Africa, and how Thrive CFO can help you with your crypto accounting and compliance needs.

Crypto Taxes South Africa: Key Takeaways

How SARS Views Crypto Assets

The current legal and regulatory status of crypto assets in South Africa is not very clear or consistent. There is no specific legislation or regulation that governs crypto assets, and different authorities have different views on them.

However, SARS has issued some guidance on how it treats crypto assets for tax purposes. The main sources of guidance are:

• A media release from 2018, where SARS stated its position on crypto assets and clarified some common questions.
• A set of FAQs, where SARS answered some frequently asked questions on crypto taxes and provided some examples.
• A position paper from the Intergovernmental Fintech Working Group (IFWG), where SARS participated in a consultation process with other regulators and stakeholders on crypto assets.

The key points from SARS’s stance on crypto assets are:

• Crypto assets are not recognised as legal tender or currency in South Africa, but as intangible assets.
• Crypto assets are subject to normal income tax rules, and taxpayers must declare all crypto-related income or gains in their tax returns.
• The tax treatment of crypto assets depends on the nature and intention of the taxpayer’s activities, and whether they are regarded as capital or revenue in nature.
• SARS has the power and authority to access and verify the financial data of taxpayers who deal with crypto assets, both locally and abroad.

Crypto Capital Gains Tax vs Crypto Income Tax

One of the most important aspects of crypto taxes is to determine whether your crypto transactions are subject to capital gains tax (CGT) or income tax. This depends on whether your transactions are considered capital or revenue in nature.

Capital transactions are those that involve buying and holding crypto assets for long-term investment purposes, while revenue transactions are those that involve buying and selling crypto assets for short-term trading or speculation purposes.

The difference between CGT and income tax is significant, as they have different tax rates and calculation methods.

CGT is a tax on the net gain that you make from disposing of a capital asset. The net gain is calculated by subtracting the base cost (the original purchase price plus any related expenses) from the proceeds (the selling price minus any related expenses). The net gain is then multiplied by the inclusion rate (40% for individuals and 80% for companies) to get the taxable capital gain. The taxable capital gain is then added to your taxable income and taxed at your marginal tax rate.

Income tax is a tax on the gross income that you receive from a revenue source. The gross income is calculated by adding up all the income that you receive from your revenue activities, without deducting any expenses. The gross income is then taxed at your marginal tax rate.

The table below shows the current tax rates for CGT and income tax for individuals and businesses in South Africa.

To illustrate the difference between CGT and income tax, let’s look at an example:

Suppose you bought 1 Bitcoin for R100 000 in January 2020 and sold it for R500 000 in December 2020. You also paid R1 000 in fees for each transaction. How much tax would you pay if your transactions are considered capital or revenue in nature?

If your transactions are capital in nature, you would pay CGT as follows:

• Net gain = R500 000 – R100 000 – R1 000 – R1 000 = R398 000
• Taxable capital gain = R398 000 x 40% = R159 200
• CGT = R159 200 x 45% = R71 640

If your transactions are revenue in nature, you would pay income tax as follows:

• Gross income = R500 000 – R1 000 = R499 000
• Income tax = R499 000 x 45% = R224 550

As you can see, the tax amount is much higher if your transactions are revenue in nature than if they are capital in nature.

Therefore, it is crucial to determine the nature and intention of your crypto activities, as this will affect your tax liability significantly. SARS will look at various factors to determine the nature and intention of your crypto activities, such as:

• The frequency and volume of your transactions
• The duration of your holding period
• The purpose and motive of your transactions
• The pattern and regularity of your transactions
• The level of skill and knowledge involved in your transactions

There is no definitive rule or formula to determine the nature and intention of your crypto activities, as each case will depend on its own facts and circumstances. However, some general guidelines are:

• If you buy and hold crypto assets for long-term investment purposes, with the intention of benefiting from capital appreciation, your transactions are likely to be capital in nature.
• If you buy and sell crypto assets for short-term trading or speculation purposes, with the intention of profiting from price fluctuations, your transactions are likely to be revenue in nature.
• If you mine or stake crypto assets as a reward for providing network services, your transactions are likely to be revenue in nature.
• If you receive crypto assets as income or remuneration from employment or business activities, your transactions are likely to be revenue in nature.

How to Keep Track of Your Crypto Transactions

One of the challenges of dealing with crypto assets is to keep track of your crypto transactions and records. This is important for several reasons, such as:

• To comply with SARS’s reporting requirements and avoid penalties or audits.
• To calculate your tax liability correctly and optimise your tax planning strategies.
• To monitor your crypto portfolio performance and make informed decisions.

However, keeping track of your crypto transactions can be difficult and time-consuming, especially if you have multiple wallets or exchange accounts, or if you engage in complex or frequent transactions.

Here are some tips and best practices on how to keep track of your crypto transactions:

• Use a reliable and secure crypto wallet or exchange platform that provides transaction history and statements. You should choose a wallet or exchange that has a good reputation, offers high security and privacy features, and supports the crypto assets that you use. You should also make sure that you have access to your transaction history and statements, and that you can export them in a format that is easy to read and analyse.
• Use a dedicated software or app that can sync with your wallet or exchange accounts and generate reports and summaries of your crypto transactions. There are many software or apps that can help you with your crypto accounting, such as Koinly, CoinTracking, CryptoTrader.Tax, and more. These tools can help you to automatically import your transaction data from various sources, categorise and label your transactions, calculate your gains and losses, and generate tax reports and forms.
• Use a spreadsheet or a notebook to manually record your crypto transactions, including the date, amount, price, fees, and purpose of each transaction. This method may be suitable for you if you have a small number of simple transactions, or if you prefer to have more control over your records. However, this method may also be prone to errors and omissions, so you should be careful and diligent when recording your transactions.

How Thrive CFO Can Help You with Your Crypto Accounting

If you are looking for a professional and convenient way to handle your crypto accounting needs, you should consider hiring Thrive CFO as your cloud accounting partner.

Thrive CFO is a modern cloud accounting firm that specialises in serving consultancies, professional services, and creative agencies in South Africa. It has the expertise and experience to help you with your crypto accounting needs, such as:

• Providing expert advice and guidance on the tax implications of your crypto activities, based on your specific situation and goals. Thrive CFO can help you to understand the tax rules and obligations that apply to your crypto activities, whether they are capital or revenue in nature, and how to optimise your tax planning strategies.
• Setting up and maintaining your accounting systems and processes for your crypto transactions, using the best cloud-based tools such as Xero and Dext. Thrive CFO can help you to integrate your crypto wallets and exchange accounts with Xero, a leading online accounting software that allows you to manage your finances from anywhere. Thrive CFO can also help you to use Dext, a smart app that allows you to capture, store, and analyse your receipts and invoices.
• Preparing and filing your tax returns with SARS on your behalf, ensuring accuracy and compliance. Thrive CFO can help you to prepare and file your annual tax returns with SARS, using the latest tax rates and forms. Thrive CFO can also help you to deal with any queries or audits from SARS regarding your crypto taxes.
• Offering virtual CFO services that can help you with budgeting, forecasting, analysis, reporting, compliance, and more. Thrive CFO can help you to grow your business and achieve your goals by providing you with virtual CFO services that can help you with various aspects of your business finances. Thrive CFO can help you to create budgets and forecasts, analyse your financial performance, generate reports and dashboards, ensure compliance with regulations and standards, and more.

By hiring Thrive CFO as your cloud accounting partner, you can save time and money, reduce stress and hassle, improve efficiency and accuracy, and focus on what matters most: growing your business.

How to Report Your Crypto Taxes to SARS

Once you have calculated your crypto-related income or gains for the tax year, you need to report them to SARS in your annual tax return.

Depending on whether your income or gains are subject to CGT or income tax, you need to fill out different sections and forms in your tax return.

If your income or gains are subject to CGT, you need to fill out the following sections:

• Section 1: Personal Details – You need to provide basic information about yourself such as name, ID number, address, bank details, etc.
• Section 2: Capital Gains and Losses – You need to provide details about your capital gains and losses from your crypto transactions, such as the description, date, proceeds, base cost, and taxable capital gain of each transaction. You also need to indicate whether you used the annual exclusion or the primary residence exclusion for any of your transactions.
• Section 3: Summary of Capital Gains and Losses – You need to provide a summary of your total capital gains and losses for the tax year, and the amount of tax payable on your taxable capital gain.

If your income or gains are subject to income tax, you need to fill out the following sections:

• Section 1: Personal Details – You need to provide basic information about yourself such as name, ID number, address, bank details, etc.
• Section 2: Income – You need to provide details about your income from various sources, such as salary, interest, dividends, rental, business, etc. You also need to include your crypto-related income in the appropriate category, depending on the nature of your activities. For example, if you received crypto assets as remuneration from employment, you need to include them in the salary category. If you received crypto assets as income from business activities, you need to include them in the business category.
• Section 3: Deductions – You need to provide details about your deductions from your taxable income, such as medical expenses, retirement annuity contributions, donations, travel expenses, etc. You also need to include any expenses or deductions that are related to your crypto activities, such as fees, commissions, mining costs, etc.
• Section 4: Tax Calculation – You need to provide a calculation of your taxable income and tax payable for the tax year, based on your income and deductions.

To help you with reporting your crypto taxes to SARS, you can use the software or app that you used to keep track of your crypto transactions. These tools can generate tax reports and forms that are compatible with SARS’s requirements and formats. You can then upload or submit these reports and forms online via SARS eFiling or SARS MobiApp.

Alternatively, you can hire Thrive CFO as your cloud accounting partner and let them handle your tax reporting and filing for you. Thrive CFO can prepare and file your tax returns with SARS on your behalf, ensuring accuracy and compliance. Thrive CFO can also deal with any queries or audits from SARS regarding your crypto taxes.

How to Reduce Your Crypto Taxes Legally

While crypto assets are subject to tax in South Africa, there are some ways to reduce your crypto tax liability legally, by taking advantage of certain tax rules and incentives that apply to crypto assets.

Here are 4 examples of how to reduce your crypto taxes legally:

1. Use the annual exclusion of R40 000 for CGT purposes, which means that the first R40 000 of your net capital gains in a tax year are not taxable. This can help you to lower your taxable capital gain and your CGT amount.
2. Use the primary residence exclusion for CGT purposes, which means that if you sell your home and use crypto assets to pay for part or all of the purchase price, you can exclude up to R2 million of the capital gain from tax. This can help you to avoid paying CGT on a large portion of your crypto gain.
3. Use the retirement annuity fund deduction for income tax purposes, which means that if you contribute to a retirement annuity fund using crypto assets, you can deduct up to 27.5% of your taxable income or R350 000, whichever is lower, from tax. This can help you to reduce your taxable income and your income tax amount.
4. Use the small business corporation tax relief for income tax purposes, which means that if you run a small business that deals with crypto assets, you can qualify for lower tax rates and accelerated depreciation allowances, subject to certain criteria. This can help you to pay less income tax and save more money for your business.

These are just some of the ways that you can reduce your crypto taxes legally in South Africa. However, you should always consult a professional tax advisor before implementing any of these strategies, as they may have different implications and consequences depending on your specific situation and goals.

Crypto Tax FAQs

Here are some frequently asked questions (FAQs) and answers on crypto taxes South Africa, based on the most common queries and concerns that taxpayers have.

1. How do I determine the value of my crypto transactions in ZAR?

• • You need to use the spot exchange rate at the time of each transaction to convert your crypto transactions into ZAR. You can use any reputable source of exchange rates, such as CoinMarketCap, CryptoCompare, or XE. You should also keep proof of the exchange rates that you used, such as screenshots or printouts.

2. How do I treat crypto-to-crypto transactions for tax purposes?

• • You need to treat crypto-to-crypto transactions as disposals of one crypto asset and acquisitions of another crypto asset. You need to calculate the proceeds and base cost of each transaction in ZAR, using the spot exchange rate at the time of each transaction. You also need to report these transactions in your tax return, either as capital gains or income, depending on the nature and intention of your activities.

3. How do I treat hard forks, soft forks, and airdrops for tax purposes?

• • You need to treat hard forks, soft forks, and airdrops as receipts of new crypto assets. You need to assign a zero base cost to these new crypto assets, and report them as income in your tax return. You also need to value these new crypto assets in ZAR at the time of receipt, using the spot exchange rate or a reasonable estimate.

4. How do I treat DeFi activities such as lending, borrowing, and yield farming for tax purposes?

• • You need to treat DeFi activities as revenue transactions that generate income or losses from your crypto assets. You need to report these transactions as income in your tax return, and pay income tax on them. You also need to value these transactions in ZAR at the time of each transaction, using the spot exchange rate or a reasonable estimate.

5. How do I treat NFTs and gaming tokens for tax purposes?

• • You need to treat NFTs and gaming tokens as intangible assets that are subject to CGT or income tax, depending on the nature and intention of your activities. You need to report these transactions in your tax return, either as capital gains or income, depending on whether you buy and sell them for investment or trading purposes. You also need to value these transactions in ZAR at the time of each transaction, using the spot exchange rate or a reasonable estimate.

6. How do I treat losses from crypto transactions for tax purposes?

• • You need to treat losses from crypto transactions as capital losses or revenue losses, depending on whether they arise from capital or revenue transactions. You can offset these losses against other gains or income from the same category in the same tax year. If you have excess losses that cannot be offset in the same tax year, you can carry them forward to future tax years until they are fully utilised.

7. How do I treat donations or gifts of crypto assets for tax purposes?

• • You need to treat donations or gifts of crypto assets as disposals of crypto assets for the donor or giver, and as acquisitions of crypto assets for the donee or receiver. You need to calculate the proceeds and base cost of each transaction in ZAR, using the spot exchange rate at the time of each transaction. You also need to report these transactions in your tax return, either as capital gains or income, depending on the nature and intention of your activities. You may also be liable for donations tax if the value of your donations exceeds the annual exemption of R100 000.

8. How do I treat inheritance or estate duty of crypto assets for tax purposes?

• • You need to treat inheritance or estate duty of crypto assets as disposals of crypto assets for the deceased, and as acquisitions of crypto assets for the heirs or beneficiaries. You need to calculate the proceeds and base cost of each transaction in ZAR, using the spot exchange rate at the date of death. You also need to report these transactions in your tax return, either as capital gains or income, depending on the nature and intention of your activities. You may also be liable for estate duty if the value of your estate exceeds the abatement of R3.5 million.

Conclusion

Crypto assets are subject to tax in South Africa, and you need to understand the tax rules and obligations that apply to your crypto activities. Whether you are an investor, a trader, a miner, or a business owner, you need to keep track of your crypto transactions, calculate your crypto-related income or gains, report them to SARS in your tax return, and pay the appropriate amount of tax.

However, you don’t have to do it alone. You can hire Thrive CFO as your cloud accounting partner and let them handle your crypto accounting needs for you. Thrive CFO can provide you with expert advice and guidance, set up and maintain your accounting systems and processes, prepare and file your tax returns with SARS, and offer virtual CFO services that can help you grow your business and achieve your goals.

If you are interested in hiring Thrive CFO as your cloud accounting partner, please contact us today and we will be happy to assist you.