Cryptocurrency transactions attract both Capital Gains Taxes and Income Taxes in South Africa. While SARS has set out unclear guidelines on how crypto is taxed, we will look at the likely outcomes for the most common cryptocurrency transactions.
This guide is regularly updated
Before we start - crypto tax rules are in constant flux. At Koinly we keep a very close eye on South Africa's crypto policies - here - and regularly update this guide to keep you informed and tax-compliant.
08 September 2021 Welcome to your South African cryptocurrency tax guide!
Yes, Cryptocurrency is taxed in South Africa.
In South Africa cryptocurrency is viewed as an assets of an 'intangible nature' as opposed to currency or property. Crypto thus attracts both Capital Gains Tax and Income Tax. It is unfortunately not clear whether crypto should be taxed as income or as capital.
If you’ve bought or sold cryptocurrency in the last financial year from a South African exchange, or one based overseas, you'll need to declare your crypto totals on your income tax return.
With SARS specifically targeting crypto with possible jail time, it’s essential that you track your crypto trades carefully, and use an accountant who is experienced in crypto to assist you at tax time.
Capital Gain or Income?
Despite updating its guidance on crypto in August 2021, the South African Revenue Service is still not clear on whether a taxable event should be treated as income or capital gains tax.
What we do know is that SARS defines cryptocurrency as an asset and a financial instrument in a class of its own. That means it's viewed differently to shares or bonds.
From here, it's clear that capital gains tax should apply, but income tax is also a possibility. SARS has not made it clear how cryptocurrency should be taxed in every situation, or what an individual investor looks like, versus a trader or business.
In countries where income tax and capital gains tax are subject to the same rate, the nature of trading vs investment is not important. In South Africa, however the top marginal personal income tax rate is 45% and top marginal capital gains tax rate is 18%; therefore a point of great significance.
South African crypto tax consultants are of the opinion that since SARS has shared examples of capital gains tax disclosures only, that this is the lay of the land. The revenue collector has also not given examples of income tax disclosure. Yet - both may apply, and income tax may well be the position that SARS favours as a revenue raising tactic.
For this reason it's best to work with your accountant when submitting your Income Tax Return. You can invite your accountant to view your Koinly account here.
Will SARS know about your crypto?
SARS have been granted a wide range of collection powers in terms of the Income Tax Act. This includes a requirement for third-party service providers to submit financial data if called on - locally and abroad.
So yes, if you have an account with a South African cryptocurrency exchange, then it's likely that SARS will be able to access your data. And if you trade on an overseas exchange, SARS can attempt to track down that information too.
Capital Gains Tax
Capital Gains Tax is one of the taxes crypto investors face in South Africa, a Capital Gains Tax event occurs when you dispose of your cryptocurrency.
In other words, as an investor, if you get rid of your crypto, whether you sold it, swapped it or gave it away - or spent it to buy goods, services and very often, cryptocurrency transaction fees.
Here are the 4 disposals that are typically taxed as capital gains:
- Selling cryptocurrency for fiat currency, such as Rands or Dollars
- Swapping cryptocurrency, such as Ether for Bitcoin
- Gifting crypto
- Spending crypto to buy goods and services
Taxed as an investor
South African taxpayers get off relatively lightly when it comes to Capital Gains Tax. As an individual you have an annual exclusion of R40,000 after which 40% of any gain must be included in your taxable income, which is taxed according to your marginal tax rate - or income tax bracket.
Zanele bought 1 ETH in Dec 2017 when it was valued at R12,000 and sold in in Dec 2021 for R73,800. Her capital gain is R61,800. She doesn't need to pay anything on the first R40,000 of her gain, but will need to add R21,000 (R61,800 less R40,000) to her taxable annual income.
40% of the remainder above the exclusion amount of R40,000 is taxable. To work out what she needs to pay SARS, Zanele will now take the R21,000 and multiply it by 40% to get to R8,400.
If her marginal tax bracket rate is 31%, she will pay 31% of R8,400 which is R2,604.
In summary, she pays R2,604 in tax on her ETH profit of R61,800.
Taxed as a trader
If you're taxed on revenue made from trading cryptocurrency or mining, your entire profit is now taxable and must be added to your taxable income. Less any legitimate business expenses, thank goodness.
On the same profit of R61,800 in the above example - at a marginal tax rate of 31% - you will pay R19,158
This should make it pretty clear why every South African cryptocurrency participant desperately wants to be taxed as an investor, and why SARS would be equally motivated to tax you as a trader.
Are you an investor or a trader?
The lines are unfortunately blurry. A traditional view on 'investments' is that they're used to provide an income stream, like a rental property, or that holding an investment for 3 years plus qualifies you as an investor, according to tax legislation (in relation to the specific investment in question).
Cryptocurrency flips the script, and, newer uses for crypto like DeFi complicate matters even further.
In South Africa, it's more likely that your crypto dealings will be viewed as trading, than as investing.
The answer therefore is to convince SARS of your intention.
If you are buying to hold, one tactic might be to hold crypto, for a while at least, as part of a diversified portfolio. Here you can illustrate to SARS that your intentions are no different from those for your other investments.
If you're buying and selling more frequently, and participating in yield farming and other crypto interest-earning instruments, it's probably going to be challenging to get away as an investor. Your full profits might well be viewed as taxable income.
Annual Exclusion: An annual exclusion of R40,000 capital gain or capital loss is granted to individuals and special trusts.
Losses: If the proceeds from the disposal of your crypto is less than what you paid to acquire it initially, you'll see a loss. If you make a net capital loss then you can deduct the loss from any other class of asset gains, and even carry over the loss to future years. You may be able to use your losses to offset gains made on crypto investments, share investments and even property investments. However, you can't deduct a net capital loss from your other income.
If you lost your crypto, or it's stolen, you might be able to claim a Capital Loss as well.
How to report your crypto tax activity?
SARS wants to know about your crypto activity in terms of income and capital gains. You'll need to declare both in your annual Tax Return, in the same way you need to report your regular income, gains and losses.
The South African tax year runs from March 1 - Feb 29 the following year.
The tax season opens on 1 July and the deadline is October 31, 2021.
Filing with eFiling
Once you, or your accountant have calculated your crypto tax totals (we have an app for that!), the easiest way to file your taxes in South Africa is online. On your tax return you'll see a section under which to declare capital gains on disposals made in the financial year. This section makes special reference to cryptocurrency.
If you are a trader, there is another section for income earned as such.
Accounting method used
As an investor you can use FIFO to calculate capital gains, as long as you can individually identify your cryptocurrency assets.
Who can help you calculate your crypto tax?
Crypto tax reporting is fairly new, and a road less travelled for most accountants. That doesn't mean that SARS is going to cut you any slack. Here are 4 ways you can tackle your crypto taxes and keep in the taxman's good books. We'll start with the easiest and most accurate method first.
- Use a crypto tax calculator like Koinly to create a report of crypto activity. Send the report to your accountant to complete your tax return - you can even invite your accountant to view your Koinly account!
- Use a crypto tax calculator like Koinly to create a report of crypto activity. Add the necessary data to your tax return and file it yourself.
- Get your accountant to work out your crypto activity by supplying transaction histories, statements etc. Let them work it out and file for you.
- Work out your activity yourself, and file yourself.
How to use a crypto tax app like Koinly
Don't get stuck in the busywork. Don't get it wrong. Use Koinly. Here's how easy it is:
- Sign up for a FREE account.
- Select your base country (South Africa) and currency (Rand).
- Connect Koinly to your wallets and exchanges. Koinly integrates with Binance, https://www.luno.com/en, Valr, Kraken, eToro, and 600+ more. (See all)
- Let Koinly crunch the numbers. Make a coffee. Lekker.
- Ta-da! Your data is collected and your full tax report is generated!
- To download your crypto tax report, upgrade to a paid plan from $49 per year.
- Send your report to your accountant, or complete your SARS submission yourself, using the figures from your Koinly report.
Now that you know how to go about calculating and submitting your taxes, let's explore South Africa's crypto tax rules in more detail. Here's a breakdown of the most common crypto scenarios and the tax liability they are likely to trigger.
Like in most parts of the world, there are no taxes on buying cryptocurrencies in South Africa. Crypto is also VAT-free.
However, keeping accurate records of the purchase is very important so that you can calculate the cost basis of the transaction when you decide to sell or 'dispose' of your crypto - as that is the moment when you will have to pay tax.
Koinly is not just a crypto tax calculator but a crypto portfolio tracker too - the perfect tool to keep a hold on your crypto purchase and sale dates.
If your strategy is to simply buy and hold your crypto, then you don’t need to pay tax on the cryptocurrency you hodl, even if the value of your portfolio increases. The taxable event is when you sell, exchange, spend or gift your crypto.
Moving crypto between wallets
Moving crypto between different wallets or accounts is not a taxable event and doesn't trigger CGT. Having said that, it's important to keep track of these movements because automated crypto tax software like Koinly use these movements to keep track of your cost-basis.
Let's say Sam buys 4LTC for R1,000 on Coinbase. She later moves the funds into her private LTC wallet. A few days later she transfers the LTC from her private wallet to her Binance account and sells it for R2,000, making a profit of R1,000.
If Sam wants to use Koinly to generate her crypto tax report, she will have to connect all three wallets. If she doesn't sync her private wallet but only syncs the Luno and Binance account, Koinly won't be able to identify that the funds she transferred into her Binance account are the same funds she purchased on Luno. However, once Sam adds her private wallet address, Koinly can match the transfer by tracing it from Luno to her wallet and then from her wallet to Binance. This will help in producing an accurate tax report.
If she no longer has access to her private wallet, she will have to make some manual changes using the Koinly web interface. She will have to mark the transfer from Coinbase as Ignored so that Koinly doesn't realize gains on it and she doesn't have to pay taxes twice. She would then change the value of the incoming transaction to Binance to match the cost-basis of the outgoing transaction from Coinbase.
According SARS, selling crypto for fiat currency, such as the Rand, is a taxable event. Profit made from the sale of cryptocurrency attracts a tax. If you are operating as an investor it is likely that a sale will be treated to CGT, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Sam purchases 0.1 Bitcoin in July 2017 for R10,000 and sells it in November 2017 for R15,000. His total capital gain is thus R5,000.
Trading one crypto for another (ex. BTC → XRP) is a taxable event in South Africa. SARS sees a trade as 2 separate transactions, first you are selling your BTC for X amount of fictional Rands, then you are buying ETH with these fictional Rands. Even though you never received any Rands in hand, you still have to pay tax on the sale of the BTC.
The market value (in ZAR) of the purchased coins is used to determine the gain. If the cryptocurrency that you received can't be valued, you will have to take into account the market value of the crypto you sold at the time of the transaction.
If you are operating as an investor it is likely that a swap will be treated to CGT, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Dissimilar from the tax treatment of crypto investments, the 2018 SARS guidelines specify that “[g]oods or services can be exchanged for cryptocurrencies.
This transaction is regarded as a barter transaction. Therefore the normal barter transaction rules apply.” In other words, this crypto is taxed as income to be reported on the ITR12 form.
Getting paid in crypto
Whether you are freelancing or working for a company that pays employees in crypto, you can't escape income tax.
In most countries where crypto is taxed, any coins received as income are taxed at market value at the time you received them so make sure you declare this income on your annual tax return or you might end up facing the taxhammer.
If you are operating as an individual it is likely that crypto income will be treated as Income Tax, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
SARS tax treatment of crypto mining activity falls under both normal cash and barter transaction rules. Crypto miners are first taxed at the time they acquire the cryptocurrency in line with income taxes.
SARS' 2018 guidelines state that “until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realised through either a normal cash transaction...or a barter transaction.”
Staking rewards are like dividends and are typically taxes as income around the world. If you are operating as an individual it is likely that SARS will apply Income Tax to your your staking income, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
In most countries, Airdrops are typically treated as assessable income at the time of the airdrop. So, if you’re sent R400 worth of tokens in an airdrop, you need to report that as taxable income.
If you are operating as an individual it is likely that SARS will apply Income Tax to your your airdrop income, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Referral and Sign-up bonuses
Any crypto you get in return for signing up or referring users to a service is taxed as Income. Referral bonuses are akin to the concept of commission.
If you are operating as an individual it is likely that SARS will apply Income Tax to your your referral bonuses, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
To put it very simply, DeFi interest is like earning bank account interest. Lending your cryptocurrency and getting interest on the same generates taxable income. This is similar to mining coins and is subject to similar rules. You have to declare it on your Income tax statement as additional ordinary income. If you are operating as an individual it is likely that SARS will apply Income Tax to any DeFi interest earnt, but at the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Giving: In South Africa gifting (opposed to donating) crypto is viewed exactly the same as selling it. The proceeds would be the fair market value of the crypto on the date when the gift was given. At the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Romi bought 1 ETH for R2,000 in Jan 2020. In June 2020, she gives her daughter crypto as an 18th birthday present, on which day the ETH is valued at R4,000. The difference of R2,000 is the 'gain' that Romi made, even though she did not sell her ETH back into Rands, and she effectively gave the crypto away. Jane's gain of R2000 attracts tax.
Receiving: If you're the lucky recipient of a gift or donation made in crypto, your 'gain' is not immediately taxed, in fact the event is tax free. Instead, you're taxed when you go on to dispose of it. Sell, exchange or give away.
In South Africa crypto donations work the same as regular donations - they're tax deductible if you're donating to a registered charity.
You can claim the donated amount, calculated as the dollar price of the cryptocurrency at the time it’s donated) as a deduction on your tax return.
A stablecoin - like TrueUSD is simply a class of cryptocurrency that offers price stability. That's because stablecoins are backed by a reserve asset, usually a stable fiat currency like USD or GBP. As far as SARS is concerned however, stablecoins are exactly the same as any other cryptocurrency, and so the tax treatment is the same as for regular crypto to crypto exchanges. At the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Let's say you purchased 1 Bitcoin for R1000 in July 2017. In November 2017, you exchanged 0.5 Bitcoin for 3 Ether. At this time, the market value of 3 Ether was around R2,000.
This means your capital proceeds come to R2,000 and the cost of acquisition is R500. In other words, your gains would be R1,500.
As an investor, will you pay Capital Gains Tax if you've already paid Income Tax?
Although SARS is murky on where gains are treated as capital or income, it is very possible that you could pay tax on your crypto as it come in, and goes out.
In many countries where crypto tax rules are well established, it looks like this: If you've made income from crypto as an investor and then sell your newly gained crypto, there are 2 taxable events at play.
First, income tax is paid on the coins you received. Then capital gains tax is paid on the profit or loss when you sell, or 'dispose' of these coins.
If you receive an airdrop of 1 XRP (worth R1,500) and later sell it for R2,000, you would have to pay Income tax on R1,500 and a capital gains tax on the R500 profit.
At the time of writing it is unclear where Capital Gains Tax or Income Tax applies.
Lost, hacked or stolen crypto
If you lose your private key or your crypto is stolen, you may be able to claim a Capital Loss. To claim a Capital Loss, SARS will most likely require you to provide evidence such as:
- The wallet address that the key belongs to
- When you acquired the key and when you lost it
- The cost of acquiring the stolen/lost cryptocurrency
- The fact that the wallet was controlled by you
- The amount of cryptocurrency at the time that you lost the key
- That you possess the hardware where the wallet is stored
- The transactions to the wallet from an exchange which is linked to your identity
Whether a particular transaction attracts CGT or Income tax, the tax rules for cryptocurrency allow for deducting costs. For example, in the case of income, taxpayers may claim expenses on their taxes. In the case of Capital Gains Taxes (CGTs), the cost of purchasing the crypto is considered for determining the taxable amount. Thus, you only pay capital gains on any appreciation your crypto has made.
The first step towards minimising your tax liability is figuring out what losses and expenses you can offset against your taxable income. In order to do this, you first need to figure out whether you will be classified as someone who holds crypto as an investment or whether you're carrying on a crypto trading business.
The time of disposal of the crypto is the key to working out if it's a personal use asset. The longer the crypto is held, it's unlikely to be a personal use asset — even if you ultimately use it to purchase items for personal consumption. This is because you have likely benefited from an increase in the value of the crypto during the holding period.
So use this provision with care. If you end up getting investigated by SARS, the burden of proof is on you to show that the crypto was, in fact, a personal use asset. Also, all capital losses you make on personal use assets cannot be written off against capital gains at any point.
The cost of your Koinly plan can be listed as a business expense. This would go under 'other expenses'.
Calculating your crypto taxes (example)
Let's look at how capital gains are calculated by way of an example.
- Jed bought 1 BTC for $1000 on 1st July 2020.
- He traded it for 20 ETH on 5th July 2020. The market value of 20 ETH at this point was $1500.
- He also received 0.15 ETH (worth $10) from Coinbase as a signup bonus.
To calculate the crypto taxes for Jed we are going to use Koinly which is a free online crypto tax calculator.
After entering the 3 transactions into Koinly manually, this is the output:
We can see the gain/loss on each transaction clearly. Navigating to the Tax Reports page also shows us the total capital gains.
As you can see, Jed will have a taxable capital gain of $500 along with taxable income of $10 from cryptocurrencies.
The good thing about crypto tax software is that whether you have 10 transactions or 10,000 - it is equally easy to generate your tax reports! You can sign up for a free Koinly account and view your capital gains in a matter of minutes.
Bonus: Use cryptocurrency tax software to automate your reports
Filing with your Koinly report
Ready to share your 2020-21 crypto journey with SARS? Whether you're filing yourself via myTax or printed forms, or handing the job over to your accountant, you'll need to start by downloading your crypto activity summary from Koinly.
While the task of preparing your crypto taxes can seem quite daunting - especially if you traded on multiple exchanges - there are tools like Koinly which can make your life really easy.Here's how it works:
1. Connect your exchanges and wallets
Most exchanges have API's that can allow Koinly to download your transaction history automatically. You can also import CSV or excel files with your transaction history if you prefer that (or if your exchange does not have an API).
Once imported you'll have a clear overview of your trades and can use Koinly as a portfolio tracker.
2. Ensure your account settings are correct for South Africa.
Your base currency should be ZAR. The pre-selected cost-basis method is FIFO.
3. Head over to the Reports page.
Select the date range you need to file for. Koinly does a number of things under the hood in order to calculate your capital gains and income. First it fetches the market rates at the time of your trades, then it matches transfers between your wallets and exchange accounts and finally it calculates your capital gains.
4. Select and download your report
Koinly offers many downloadable tax reports. For South Africa, the report you need to download is called 'Complete Tax Report'
Your report will download as a PDF and will contain:
1. Capital gains summary
2. Income summary
3. Asset Summary
4. End of Year Balances
5. Capital Gains Transactions
6. Income Transactions
7. Gifts, donations & lost assets
9. Data sources
With your summaries calculated, it's time to share your data with SARS.