Cryptocurrency is taxable in South Africa, and subject to both Income tax and as Capital Gains Tax. We all want to maximise our investments, which often includes ensuring that we are handing over as little as possible to the tax man. But, there is a very clear distinction to be made between tax planning and tax evasion.
Tax planning is everything that can be done, within the law, to minimise tax, whereas tax evasion or avoidance is simply not paying tax and is illegal. In South Africa, it is punishable with fines and jail time, and should be taken very seriously. Don't worry if you find crypto tax a bit complicated, we've covered everything you need to know in our Ultimate South Africa Crypto Tax Guide. In this guide, you can find out everything you need to know about South Africa crypto tax and the penalties for crypto tax evasion in South Africa.
How is crypto taxed in South Africa?
The South African Revenue Service (SARS) views crypto as an asset of an ‘intangible nature’, similar to trademarks, IPs, or patents. As such, it is subject to both Income Tax and Capital Gains Tax. This means that if you have bought or sold any cryptocurrency in a financial year, either on a South African exchange or an international one, you would need to declare the totals on your income tax return. It’s useful to remember that SARS refer to crypto as crypto assets - ‘asset’ being an important keyword in terms of tax.
Even though guidelines are regularly updated, SARS still isn’t particularly clear about whether a taxable event should be considered as income or a capital gain. While this isn’t an issue in countries where the same rate applies to both, unfortunately in South Africa, there could be a big difference between the two.
The amount of tax you'll pay on crypto in South Africa depends on the specific transaction, the tax that applies and how much you earn. For crypto subject to Capital Gains Tax, individuals pay a maximum effective 18% tax rate depending on their total taxable income. For crypto subject to Income Tax, individuals pay between 18% to 45% in tax depending on their total taxable income.
With tax on crypto, South Africa and SARS have taken a stern view on those who have not declared the crypto for tax purposes, and are pushing for jail time as punishment. As of 2021 amendments to the legislation now make it easier for SARS to lay a charge for tax evasion in South Africa. Previously SARS had to prove that the taxpayer willfully evaded or avoided their tax liability. Under current legislation, SARS now simply needs to prove negligence on the taxpayer’s side. With this in mind, and with the ambiguity in whether Income Tax or Capital Gains Tax is applicable, it is essential that you track your trading very carefully and it is definitely worthwhile seeking the help of an accountant who is experienced in crypto.
Can the SARS track your Crypto?
Thanks to the Income Tax Act, SARS have been given a range of collection powers. Among others, this includes that third-party service providers submit full financial data if they are called to, both locally and internationally.
This means that they will most likely be able to access your data from any centralised crypto exchange with KYC processes in place. In June 2021, the three largest South African exchanges (Luno, VALR and AltCoinTrader) confirmed that SARS had approached them to provide information on customers. If you are trading on an international platform then SARS will attempt to track down data from them too. And given that most exchanges try to be as compliant with government legislation as possible, they may well succeed in getting that info. So when it comes to declaring your portfolio be sure to use all the tools you can to ensure you are paying the correct amount, that includes using accountants, understanding what transactions are taxable, and using a crypto tax calculator, such as the one Koinly offers.
That said, just because you have a crypto portfolio, doesn’t necessarily mean that you will pay tax on all your transactions…
Which transactions are taxable and which aren’t?
As we mentioned above, not all your transactions are necessarily considered subject to either Capital Gains Tax or Income Tax. First, let's have a look at what SARS would deem a taxable event.
- Selling crypto for fiat currency - like ZAR.
- Swapping crypto. Where there is a clear change in value, SARS may regard this as a capital gain or income to be included in the gross income of the taxpayer. i.e. From USDC to VALR and the transfer results in an increased net value.
- Spending crypto.
- Getting paid in crypto is included under gross income
- Mining and staking rewards.Taxable as considered income to the benefit of the taxpayer and therefore included under the taxpayer's gross income
- Bonuses - like referral and sign-up bonuses.
- Gifting crypto
But there’s some good news. Here are some of the transactions that are not considered taxable in South Africa.
- Buying crypto with fiat currency.
- Holding crypto.
- Transferring crypto between your own wallets. Though there is little to no guidance on this as yet, it is known that the SARS will most likely look at the substance over form of the transaction and thus where a clear gain as a result of a transfer between wallets is identified, this will most likely be viewed as a deemed disposal under the 8th Schedule of the Income tax act - where the proceeds is regarded as capital in nature.
These transactions are not considered taxable events by SARS and so if you are planning on buying and holding onto your crypto you don’t have to worry about paying anything to the tax man.
That said, when purchasing your crypto you should make sure that you keep accurate records so that you can consider the cost basis of the transaction if you decide to sell.
What’s the penalty for crypto tax evasion in South Africa?
Thinking of avoiding or evading your crypto taxes? Think again. The fines and penalties are severe.
First, let’s clarify the difference between tax evasion, tax fraud and tax planning.
- Tax planning: Legal. This involves optimising your taxable position to reduce your tax liability using a variety of strategies like tax loss harvesting, utilising tax credits and so forth.
- Tax evasion: Illegal. Whether intentionally or unintentionally, you avoid paying your tax liability. Section 235 of the TAA clearly classifies tax evasion as a criminal offence.
- Tax fraud: Illegal. Fraud is included under the definition of a "tax offence" per the TAA. This happens when you intentionally misrepresent your financial position to SARS.
Under the Tax Administration Act, SARS can hand out some heavy penalties for tax evasion or fraud. Both tax evasion and tax fraud carry a maximum prison sentence of up to five years. SARS can also hand out administrative penalties - even just for being late on your tax return - up to R16,000 a month depending on your income, for each month that non-compliance continues, for a maximum of 35 months.
What if I’ve previously avoided crypto taxes?
If you didn't know crypto was taxed and you've previously avoided crypto taxes unintentionally, don't panic.
SARS has what's known as a voluntary disclosure programme (VPD) to enhance voluntary compliance. You can use the VPD to voluntarily disclose any prior tax avoidance with SARS.
It's important to note, using the VPD doesn't guarantee you won't face additional fines - but those who use the VPD are generally viewed far more favourably by SARS than those who don't.
Declaring your crypto to the SARS
Once you, or your accountant, have worked out what your crypto tax totals are, you need to submit these totals on your annual tax return. There is a section specifically outlined for capital gains declarations on disposals which makes a specific reference to cryptocurrency.
If you are a trader, there is a different section for the income earned from your trades. SARS eFiling platform is the easiest way for you to submit your returns and is very user-friendly.
How Koinly can help you stay compliant
Given the severity of the punishment that SARS pursues when it comes to crypto tax, ensuring that you are paying the right amount of tax is a priority. Using the tools available, whether that is an accountant, a crypto tax calculator, or a portfolio tracker, you should be able to navigate your declarations without too much of a headache.
Koinly has also made it easy for you to download your activity for submission thanks to our range of tools and services. All you need to do is link your wallets and the exchanges you use, ensure your accounts settings are correct for South Africa and download the report you need.