The tax implications of crypto assets as per the income tax act 58 of 1962 from a South African perspective

Abstract

Crypto assets have characteristics akin to those of virtual and financial products. They are currently utilised in payment transactions, financial instruments, investments, and corporate coupon bonds1 (The World Bank, 2017; HM Treasury et al., 2018; FCA 2021). These types of assets can be thought of as intangible digital assets whose creation, sale, or transfer are controlled by cryptographic technology and are shared electronically via a distributed ledger (Bartolucci & Kirilenko, 2020). Crypto assets are purchased for different reasons, such as speculative investing (a perceived increased future value), as a medium of exchange in facilitating transactions for goods and/or services, or for access to specific products, services, and utilities (Intergovernmental Fintech Working Group, 2021). Guidance on crypto assets issued by the Financial Conduct Authority of the United Kingdom (Financial Conduct Authority of the United Kingdom, 2019) categorises crypto assets into three different classes, namely Utility, Security and Exchange Tokens. The report aims to gain a comprehensive understanding of the commercial and economic substance of crypto assets and use this as a guide on how crypto assets should be taxed from a South African perspective. Further to this, the report analyses the separate classes of crypto assets available to taxpayers, namely, asset backed tokens, utility tokens and security tokens, and provides insight into the tax treatment of these specific classes. South Africa has adopted a stance in which the tax implications are dependent on the intention of the taxpayer. If the taxpayer regularly sells crypto assets, the presumption is that the taxpayer’s intention is to make a trading profit and taxable as a revenue profit (Haupt, 2022), whereas, if the taxpayer neither sells, exchanges nor spends the crypto asset, the indication is that taxpayer is holding it as a store of value and therefore as a capital asset (Haupt, 2022) and this is subject to Capital Gains Tax