- The SA Revenue Service is quite keen on figuring out who has made money off bitcoin and similar tokens in South Africa.
- The tax treatment for cryptocurrencies is no different from other investments in terms of capital gains – even if fiat currency has never been involved.
- But for those who got it right, the gains from bitcoin have been massive – which could mean a hefty tax bill.
- It all depends on whether there have been disposal events, though.
- Here's how much money you could now owe SARS if you've made a nice profit with an early bitcoin investment.
Judging by the anecdotes, there are a lot of newly rich South Africans thanks to the cryptocurrency boom; everyone has a story to share about the friend of a friend who got into bitcoin years ago, and rode the wave as it appreciated by more than 30 times, even after a recent plummet from more than $60,000 (R822,657) per bitcoin to closer to $30,000 (R411,328).
But nobody knows how many such people there may be – including the SA Revenue Service (SARS), which is trying to find out.
SARS has demanded, and received, information from cryptocurrency exchanges, while also auditing taxpayers directly in cases where it believes there may have been undeclared gains.
Crypto fans, and especially early investors attracted by bitcoin's promise of being anonymous, may believe their tokens are beyond the reach of tax authorities, but tax practitioners are warning South Africans that is not the case; trades may be traced now or in future, and tax avoidance is tax avoidance, regardless of the instrument.
"It is well worth remembering that tax is not only levied upon withdrawal of fiat from an exchange," said Thomas Lobban, legal manager for cross-border taxation at Tax Consulting South Africa, in a recent article.
"In other words, sales, exchanges and other activity taking place on a cryptocurrency exchange is often taxable and cannot simply be ignored because it has not been withdrawn (and therefore SARS does not know about it)."
Business Insider South Africa asked Lobban to calculate the tax liability for three different scenarios, for those who took an early punt on bitcoin and did not trade cryptocurrencies heavily since.
Here is how much tax you may owe on your bitcoin investment in South Africa.
If you made a 50x gain by investing early and just sat on it: zero
If you bought, or mined, some bitcoin in its early days, you could easily have seen a gain of more than 50 times on your holdings at one point, turning a R10,000 investment into R500,000.
If that is the case and you have done nothing since, leaving you bitcoin stash untouched, your tax bill is zero.
There is no tax effect because the lack of trading or withdrawal means there has been "no disposal event in relation to the cryptocurrency held", which would trigger tax, said Lobban.
If you made a killing on bitcoin and swapped only a small part of that into something like dogecoin: zero
What if, in early 2021 you decided that dogecoin looked like a solid investment, and swapped some of your valuable bitcoin for doge?
We asked Lobban to assume you turned R10,000 into R500,000 of bitcoin, then sold R10,000 of that for dogecoin – which was worth R40,000 at the end of the tax year.
Your tax would still be zero, he said.
The appreciation on your dogecoin is unrealised, so there is no tax liability against that. The same goes for the 98% of your bitcoin stash that you left untouched.
Where you would be liable to pay tax is on the R10,000 worth of bitcoin – 2% of the the total holding – which you sold in order to swap it into dogecoin. Subtract 2% of your original investment (R200 of the R10,000 you put in), and you achieved a capital gain of R9,800. But there is a R40,000 annual exclusion to capital gains tax that applies in this case – so your tax bill is still zero.
If you've cashed out your R500,000 worth of bitcoin: R81,000, an effective 16.2%
So assume our investor put R10,000 into bitcoin, and sold it for R500,000, we asked Lobban, what would SARS claim?
In short: R81,000, for an effective 16.2% of that cash amount.
The calculation works like this: R490,000 of the R500,000 is a capital gain. That is reduced by R40,000, the annual exemption for capital gains, so tax is calculated against R450,000. Of that, 40% (in this case R180,000) is included in taxable income, and assuming the tax payer is in South Africa’s top tax bracket, and pays 45% tax, the amount due on the bitcoin gain would be R81,000.
(Compiled by Phillip de Wet)
