The tax implications of crypto assets in South Africa

Abstract

The primary objective of this research report is to examine the current South African legislation and guidance on the taxation of crypto asset transactions. More specifically, this research report will focus on identifying any inadequacies in the legislation and guidance issued by the South African Revenue Service (SARS) and provide suggested solutions to these inadequacies.

In 2018, SARS issued a media release (South African Revenue Service [SARS], 2018) to clarify its stance on the tax treatment of crypto assets and issued a list of frequently asked questions on crypto assets which was revised in 2021 (SARS, 2021a). More recently, The Commissioner of SARS, Edward Kieswetter, confirmed that any undisclosed holdings of crypto assets would be a prioritised area of focus for the tax revenue authority in the 2021 year of assessment (Tax Consulting South Africa, 2021). This indicated that SARS would be focusing more on the taxation and verification of crypto asset transactions in the near future.

In August 2021, SARS provided further guidance on the taxation of crypto assets on their website. According to this guidance, normal income tax rules apply to crypto assets, and affected taxpayers must declare profits and losses from crypto assets as part of their taxable income. Taxpayers are further required to declare all taxable income related to crypto assets during the tax year in which it was earned or accrued; if not, the taxpayer will be subject to penalties and interest (SARS, 2021b).

The findings of this research report are that the acquisition, exchange, and disposal of crypto assets represent separate transactions with clearly identifiable income tax consequences in South Africa. The income tax consequences are dependent on whether the accrual and the amount are of a capital or revenue nature. This research report seeks to identify inadequacies in the legislation and guidance issued by SARS on the taxation of crypto assets. This will be achieved by conducting a comparative analysis between the legislation and guidance issued by the Australian Taxation Office (ATO) in Australia, the South African Revenue Service (SARS) in South