With South Africa’s 2024 tax deadline of 21 October approaching, crypto asset holders need to understand how their investments and trades are taxed under the South African Revenue Service (Sars) guidelines.
Christo de Wit, South African country manager of Luno, a licensed financial services provider, explains, “Luno is not a tax advisory service, but we take proactive steps to help our customers learn more about their obligations as crypto asset holders. Sars has provided some guidance on the taxation of crypto assets, but many still make mistakes that can result in penalties or non-compliance.”
One common misconception is that blockchain transactions are entirely anonymous and it is possible to evade their tax obligations. Wiehann Olivier, partner at Forvis Mazars and fintech and digital asset lead at Forvis Mazars South Africa says: “Most blockchains are public ledger, meaning all transactions are visible and immutable, meaning they cannot be deleted. Sars may engage with exchanges and request transactional data, as well as data-matching techniques to trace transactions back to taxpayers and they can go back further than five years. Crypto asset providers are regulated in South Africa and are therefore obligated to provide information requested by regulatory tax authorities, though this does not mean that Sars has open access to your crypto-related assets and transactions.”
Another misunderstanding is around taxable events. Many think that only converting crypto to fiat currency (like South African Rand) triggers tax obligations, but Sars considers any crypto disposal — including trading one crypto for another or using it to purchase goods and services — as a taxable event. Depending on the nature of the transaction, it could be subject to either capital gains tax (CGT) or income tax.
Trading versus investing
Dale Russel, Director of TrustReserve Solutions Limited and Moore Blockchain and Digital Assets JHB, says that a significant distinction needs to be made between trading and investing in crypto. “Traders — individuals who frequently buy and sell crypto for short-term gains — are taxed on their profits as regular income. In contrast, investors holding crypto for long-term appreciation are subject to capital gains tax, which is lower but only applies to 40% of the gain, less an annual exemption of R40,000,” he says.
“It’s important to highlight that an individual can be viewed as both a trader and an investor by Sars, depending on the nature of their behaviour with crypto assets and transactional frequency. For instance, one of your coins is an asset if you hold it with capital intent and then once you sell it, it may be subject to capital gains tax. You may hold another coin that you actively trade to take advantage of market movements. On disposal, any profit received is more akin to income in the eyes of Sars and taxed accordingly,” says Jashwin Baijoo, Associate Director and Head of Crypto Asset Compliance at Tax Consulting South Africa.
For example, if someone holds 5 ETH, with 3 ETH staked and untouched, the original staked amount may be seen as capital and therefore subject to Capital Gains Tax when eventually sold. The rewards generated from staking, however, are treated as regular income since the rewards are paid out periodically to the wallet and would be taxed accordingly as income. On the other hand, if the remaining 2 ETH are used for frequent trading activities, the profits from these trades would be classified as income and taxed under income tax.
Proper record-keeping is crucial when dealing with crypto tax. Sars requires detailed records of transactions, including acquisition and disposal dates, amounts, and transaction types, to be kept for at least five years. These records are essential for accurate tax reporting, and failure to maintain them can lead to discrepancies during tax assessments.
Many individuals also overlook the tax implications of earning crypto through activities like mining, staking, or airdrops. Any crypto earned in these ways is considered income at the time of receipt and is taxed accordingly, based on its fair market value in ZAR. Later disposals may lead to additional tax liabilities if the asset’s value changes.
While capital losses could be offset, you could land in hot water if this is incorrectly applied. You need to be tactical about your approach to tax and should seek specialised advice.
“Luno provides downloadable statements to assist users in tracking their crypto activity for tax purposes. It is encouraging and a step in the right direction that SARS is working on guidance for crypto tax, even though this has not yet been bedded down. We encourage users to consult with a tax professional who understands the complexities of crypto assets taxation to ensure accurate reporting. With the right knowledge, you can stay on top of your tax obligations, so we encourage our customers to consult with a knowledgeable partner,” says de Wit.
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