The tax effects of your crypto assets
Cryptocurrency aka a crypto asset is not considered a currency for the purposes of South African income tax, it is regarded as an asset and SARS applies the normal income tax rules to it.
Income received or accrued from crypto assets transactions can be taxed on revenue account under “gross income” or alternatively such gains may be regarded as capital in nature and taxed under the Capital Gains Tax criterion.
The onus will be on the taxpayer to declare all crypto assets’ gains or losses as part of their taxable income in the tax year which it is received or accrued.
The nature of trading vs investment is very important when determining which of the above criteria will be applied with regards to your crypto assets’ income or gain.
Below we will compare the tax effect of the disposal of crypto assets by an individual during the 2021 year of assessment based on 2 scenarios (assuming the individual is taxed at the maximum marginal rate of 45% and disposed of R100 000 worth of crypto assets costing R50 000):
Crypto asset held for trading purposes: (regularly purchased and disposed of in order to make a profit)
The full R100 000 will be included in the taxpayer’s gross income and will be taxed at 45% resulting in a tax payable amount of R45 000.
Taxpayers are also entitled to claim expenses associated with crypto assets accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.
Crypto asset held for Investment purposes:
The disposal would trigger capital gains tax and a gain of R50 000 (the proceeds of R100 000 less the cost of R50 000) will be realised. The gain of R50 000 will be reduced by the annual exemption for capital gains of R40 000 for an individual resulting in a total capital gain of R10 000.
40% of the total capital gain will be included in gross income and taxed at 45% resulting in a tax payable amount of R1 800.
As SARS classifies cryptocurrency as assets and not currency such as the rand, it will be viewed as property and therefore will be treated as an asset in your estate for estate duty purposes upon death.