Crypto Taxes in South Africa: An In-Depth Guide
Crypto taxes in South Africa are simple and confusing at the same time. It may seem straightforward on paper, but once you get into the details and nuances, things change.
In South Africa, crypto is taxed under capital gains and income tax rates, depending on the nature of the transaction.
The problem is the guidelines that decide the nature of transactions aren’t really favorable for most crypto investors. While SARS wants you to pay income taxes on your crypto transactions, taxpayers want to pay capital gain taxes.
But why? And what is the confusion? How exactly does crypto taxes in South Africa work? Let’s find out.
How Does SARS View Cryptocurrency?
Even though SARS or South African Revenue Service haven’t officially classified crypto as an asset, property or currency yet, they view it as “assets of intangible nature” for tax purposes.
How is Crypto Taxed in South Africa?
As mentioned before, crypto transactions in South Africa may be subject to capital gain taxes or income taxes, depending on multiple factors.
Capital gain taxes are more favorable for South African taxpayers since you only pay an 18% capital gains tax rate on only 40% of your gains. That too, after a tax allowance of R40,000.
However, how do you determine if a crypto transaction qualifies for capital gain taxes?
When asked about this to SARS, they refer to the traditional framework for determining if an asset or property is an investment or an income tool.
Wondering what the traditional framework says?
It says that any asset or property is considered an investment only if it provides an additional income stream or is held for more than three years.
Based on this definition, even if you hold crypto with the intention to invest, you may still not qualify for capital gain taxes. Instead, you’ll be subject to income tax rates.
Income tax rates in South Africa range from 18% to 45% on the total taxable income (or capital gain). Typically, this would apply to crypto activities like day trading, mining, staking, etc. But due to the lack of clear guidelines from SARS, even the crypto assets held for more than a year, if sold, will attract income taxes.
Taxpayers in South Africa want to pay capital gain taxes due to the obvious low tax rates, while it’s in the best interest for SARS to tax crypto transactions under income taxes due to the relatively high tax rates.
Nonetheless, you can still offset any losses from your total taxable income or gain, whether you’re paying capital gain taxes or income taxes.
How to Calculate Crypto Taxes in South Africa
First, you must calculate your gains (or losses) to calculate crypto taxes in South Africa. This is how you calculate your crypto gains –
Cost Basis – Fair Market Value (Selling Price) = Gains/Losses.
After calculating, you’ll pay the appropriate taxes on your gains. If you’re subject to income tax, you’ll pay between 18% to 45% tax on the total taxable income. On capital gain taxes, you’ll pay a maximum of 18% on only 40% of the gain. So, if you make a profit of R1000, you’ll only pay an 18% tax rate on R400.
On a side note, SARS requires you to calculate your cost basis using the first-in-first-out (FIFO method). The FIFO method says you must account for your cryptocurrencies in the order you bought them.
For example –
Suppose you bought 5 BTC for R10,000 in January.
You then buy another 5 BTC for R8000 in July.
In August, you sell 5 BTC for R15,000.
So, what would be your cost basis in this case?
According to the FIFO accounting method, since the 5 BTC you bought in January came first, they will be the first to go out, making the cost basis R10,000.
Of course, this wouldn’t be as simple in real life. You can imagine how complicated and complex it can get. That’s why we suggest a crypto tax calculator like Bitcoin.Tax that does all the work for you.
Crypto Taxable Events
Since there’s so much confusion around crypto taxes in South Africa, we have broken down the tax consequences for each crypto transaction separately. The following are some of the most common crypto taxable events and their tax implications:
Selling or Spending Crypto
If you’re selling or spending crypto in a trading capacity, you’ll be liable to income taxes. Otherwise, you may pay capital gain taxes. However, it’s not clear. It’s best to consult a tax professional to guide you on this.
Swapping Crypto
The same logic in the previous taxable event will apply here.
Getting Paid in Crypto
If you’re getting paid in crypto for your services or products, you must pay income tax rates on the fair market value (FMV) of the crypto at the time of receiving it. So, if the FMV of the crypto at the time of receiving it is let’s say R5000, you’ll pay income tax rates on R5000.
Mining Crypto
Rewards from crypto mining follow the same logic as getting paid in crypto. You’ll pay income tax rates on the value of your income (rewards) at the time of receiving it.
Staking or Lending Rewards
The same logic in the previous taxable event will apply for staking and lending rewards as well.
Airdrops
SARS haven’t provided clear guidelines on whether you’ll pay capital gain or income taxes on airdrops. However, we would suggest you to expect income tax.
Gifting Crypto
Gifting crypto in South Africa is seen as the disposal of assets. Hence, you’ll most likely pay income tax rates on the gains you realize (unless you qualify for capital gain taxes).
Receiving a crypto gift, however, is totally tax-free. But you will pay taxes when you sell the gifted crypto in the future.
Tax-Free Crypto Transactions
The following are some crypto transactions that don’t have any tax implications.
Buying and Holding Crypto
Much like most countries, buying and holding crypto doesn’t qualify as a taxable event. Therefore, it’s tax-free.
Transferring Crypto Between Wallets
Transferring crypto between different wallets doesn’t trigger a tax event. Therefore, there are no taxes for transferring crypto between wallets.
Donating Crypto
Donating crypto is not tax-free. Instead, it’s tax-deductible, meaning you can deduct the amount you donate from your total taxable income. The only catch is you must donate to a charity recognized by SARS.
How to Avoid Crypto Taxes in South Africa
SARS have made it pretty transparent that they have access to data from third-party service providers. In other words, they have access to all your transaction data and records from different crypto exchanges.
They have also made it apparent that they are coming after anyone and everyone trying to avoid paying their crypto taxes.
Lately, SARS has been going hard on crypto audits, especially in cases associated with crypto. They even opened employment opportunities last year, specifically for positions involving inspecting and tracking crypto tax reporting.
So, it’s safe to say that avoiding taxes is not the best idea. Instead, we suggest you pay your taxes accurately and honestly to avoid penalties and criminal charges against you. However, there are things you can do to reduce your tax liability that are within the legal boundaries.
Donating crypto is one such strategy. Many taxpayers donate crypto to reduce their tax liability with the added benefit of giving back to the community. There’s also tax-loss harvesting.
But ultimately, if you pay a lot of money in taxes, it’s better to consult a tax professional who can help you with different tax-saving strategies tailored to your unique position.
How to Report Crypto Taxes in South Africa
In South Africa, the tax year starts on 1 March and ends on 28 February, while the tax season opens on 1 July. You must file your tax return, whether through postal or through the online portal, before the deadline, which is 24 October.
It goes without saying that you should keep all your records for all your transaction history and data, like the purchase price, the date of purchase, other costs, selling price, etc.
It’s better you use Bitcoin.Tax for this. You can easily integrate it with all your exchanges and wallets, and it will automatically calculate your gains, losses, income and taxes and can even create a tax report while you sit back and relax.