Need to know about crypto tax in South Africa and how much you might pay? Our South Africa crypto tax guide has all you need to know about crypto taxes, including how SARS views crypto, crypto Capital Gains Tax, crypto Income Tax, how to calculate and report your crypto taxes to SARS, and even how to reduce your taxes - legally - ahead of the 2023 tax deadline for non-provisional taxpayers!
Crypto Tax South Africa Summary:
- The South African Revenue Service is clear crypto is taxed
- You'll pay Capital Gains Tax or Income Tax depending on your transaction & intention
- Investors with capital gains pay an effective tax rate of up to 18%
- Traders with revenue income pay Income Tax up to 45%
- Selling, swapping, spending, and gifting crypto is a disposal and profits are taxable
- Losses are deductible and you can carry them forward
- Mining rewards, staking rewards, airdrops, and a number of DeFi activities are taxable
- Buying crypto with ZAR, holding crypto, and transferring crypto is tax free
- You’ll report your crypto taxes as part of your annual tax return by the 24th of October each year
Do you pay tax on cryptocurrency in South Africa?
Yes. Although the guidance is limited, The South African Revenue Service (SARS) is clear that crypto is subject to tax. You may pay Capital Gains Tax or Income Tax depending on the transaction and the intentions of your investment activities.
How much tax do you pay on crypto in South Africa?
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 profits subject to Capital Gains Tax, individuals pay a maximum effective 18% tax rate, on gains in excess of the R40 000 annual exclusion, depending on their total taxable income. For crypto profits subject to Income Tax, individuals pay between 18% to 45% in tax depending on their total taxable income.
This guide is regularly updated
Before we start - crypto tax rules are in constant flux. At Koinly we keep a very close eye on SARS guidance and regularly update this guide to keep you informed and tax-compliant.
30 August 2023: Updated with the latest info from SARS
28 February 2023: Updated with 2023 tax rates
1 September 2022: Updated with more guidance from SARS ahead of the 24th of October tax deadline
8 September 2021: Welcome to your South African cryptocurrency tax guide!
Can SARS track crypto?
SARS has 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!
In other words, if you're thinking of outright avoiding your crypto taxes - don't. The penalties for tax evasion in South Africa are steep, you can learn more in our crypto tax evasion South Africa guide.
Is any crypto tax free in South Africa?
Fortunately, not all your crypto transactions in South Africa will be taxed. It's only when you're earning additional income or making a disposal of crypto (more on this in a minute) that SARS will tax you. This means some transactions are tax free, including:
- Buying crypto with ZAR, or another fiat currency.
- Holding crypto.
- Transferring crypto between wallets you own - provided there's no increase in net value.
With the simple stuff out the way... let's get into the trickier aspects of crypto tax.
How is crypto taxed in South Africa?
Let's start with the obvious - SARS guidance on crypto tax is limited. The current guidance says SARS views crypto as "assets of an intangible nature", not legal tender. It is this view that dictates the tax treatment.
This means, for investors, Income Tax or Capital Gains Tax may apply - depending on the specific transaction and whether that transaction has the nature of capital or income:
- If your transaction has the nature of capital - you'll pay Capital Gains Tax on your crypto. For capital gains, taxpayers receive an annual R40,000 exclusion and only pay tax on 40% of any gain at a maximum effective tax rate of 18% (more on what this means shortly).
- If your transaction has the nature of revenue - you'll pay Income Tax on your crypto. For income, taxpayers must pay Income Tax on your entire crypto profits at their marginal Income Tax rate of between 18% to 45%.
It's important to note here that the tax treatment also depends on whether the taxpayer is a natural person or a legal entity. If the investment activities are done under a legal entity, the applicable companies tax rate of 28% (or 27% for financial years commencing on/after 31 March 2023) would apply to an inclusion rate of 80% of crypto gains, net of the R40,000 exclusion.
As well as this, a single transaction may have the nature of revenue, while another transaction may have the nature of capital.
A caveat to this though - the tax treatment of your transactions also depends on whether your investment activities are seen as you holding assets as capital assets or as trading stock. In simpler phrasing, whether you're viewed as an individual investor or a trader.
Capital assets vs. trading stock
Investors are taxed on capital gains, while traders are taxed on revenue income.
Why does this matter?
Because there's a stark difference in the tax implications.
Investors with capital gains receive an annual R40,000 exclusion. After this exclusion, 40% of any gain is subject to tax, for taxpayers who are natural persons. So to calculate your taxable gains for the year, take your net capital gain - less any losses and exclusions - and multiply it by 40%. This is the figure you'll pay tax on. The effective tax rate is a maximum of 18%, for taxpayers who are natural persons . So you'll never pay more than 18% in tax on your taxable gains, but you may pay a lower rate of tax as the formula to calculate your tax rate after deductions is still based on your total annual income.
Meanwhile, traders with revenue income do not receive the annual exclusion of R40,000. If you have revenue income, you'll be taxed on your entire profits at your marginal Income Tax rate. Traders are allowed to deduct all allowable expenses incurred directly related to generating that trading income.
As you can see, it pays to be seen as an investor with capital assets as opposed to a trader with trading stock. So, how do you know which you are?
It all comes down to your intentions and how the SARS views them, at the time of the taxable event.
Investors vs. traders
Whether you have trading stock or capital assets held as investments is decided on a case by case basis and to further complicate things SARS has no specific guidance for crypto assets. However, we can determine some general principles that will apply when determining the intention of your crypto investment activities and whether you'll be viewed as an investor or a trader:
- The first step in determining a person's tax liability in relation to an asset is to determine whether the gain or loss is of a capital or revenue nature.
- The current guidance does not provide objective rules to distinguish between capital and revenue nature. This is up to the South African courts.
- A taxpayer's intention is the most important factor in determining the capital or revenue nature of a particular profit or loss.
- Taxpayers may have more than one intention in relation to an asset.
- To determine intention, courts should consider - among other things - the frequency of transactions, the method of funding and reasons for selling.
- There is a three year rule that states that profit or loss on a disposal of an asset held for more than three years is more likely to be of a capital nature.
- The most important factor in determining whether profit is of capital or revenue nature is the intention of the person when the asset was bought and sold. If the asset was bought as a long-term investment to produce dividend income, the profit is likely to be of a capital nature. If the asset was bought for the purpose of resale at a profit, the profit is likely to be of a revenue nature. It is also important to note intentions may change and as such, the tax treatment of transactions may change with it.
- If assets were acquired with mixed intentions, the person's intentions will be determined by the dominant purpose, or intent.
- Profit will be of a revenue nature when a person has a secondary purpose of making a profit.
- A change in a person's intentions can result in an asset formerly held as a capital asset becoming trading stock, and vice versa.
- Any profit or loss on a disposal on an asset(s) will be of a revenue nature if they were purchased for resale as part of a scheme of profit making.
- A profit on the sale of an asset is likely to be of a revenue nature if it was not fortuitous, but intentionally sought and worked for.
- A capital asset is acquired 'for better or for worse' and will be disposed of only due to some unusual, unexpected or special circumstance, subject to prevailing principles such as the 3-year rule.
- The scale and frequency of transactions is of major importance in determining intent, although not conclusive.
It's a lot to take in, but as you can see, the bar to be considered a trader with revenue income by SARS is quite low. Following the general guidance above, the majority of crypto investors including DeFi investors, degens, and indeed any investor with a number of regular trades or an obvious intent to make a profit throughout a single year may be considered a trader and, as such, their investment activities would likely be viewed as trading stock and therefore revenue income.
Due to the complicated and rather vague guidance surrounding the tax implications of crypto assets, we would always recommend using an experienced crypto accountant to help with your taxes. You can find one in our South Africa crypto accountants directory.
With all this out the way, let's take a look at tax implications for transactions subject to Capital Gains Tax and Income Tax, as well as how to calculate your crypto taxes for each.
Crypto Capital Gains Tax
If you're seen as an investor, and you make a disposal of a capital asset, your profits from your transaction will be subject to Capital Gains Tax.
There are a number of ways you can dispose of a crypto asset, but the simplest way to think of it is any time a crypto asset changes ownership. This includes:
- Selling crypto for ZAR, or any other fiat currency.
- Swapping crypto for crypto, including stablecoins and NFTs.
- Spending crypto on goods or services. This is seen as a barter transaction.
- Gifting crypto - though there are some specific exclusions to this.
So if you dispose of crypto via any of the means above as an investor, and you've made a profit from that disposal, you'll need to pay Capital Gains Tax. Now let's look at how much you'll pay.
Capital Gains Tax Rate South Africa
The maximum effective Capital Gains Tax rate in South Africa is 18%, which you will pay on of your gains, for taxpayers who are natural persons.
What does this mean?
It means for investors paying the highest 45% marginal Income Tax rate, they'd pay 18% tax on capital gains. Everyone else in lower marginal Income Tax bands pays a lower tax rate than 18% based on their total annual income.
The formula for this is pretty simple:
Your net capital gain (your capital gains less any allowable capital losses) x 40% = your taxable gain.
You'll then pay Capital Gains Tax on this sum, based your total annual income at the applicable marginal Income Tax rate. The 40% inclusion creates a maximum effective tax rate of 18% on gains.
Let's look at how to calculate your capital gains and tax liability.
How to calculate capital gains
To start calculating your capital gains as an investor, you need to know your base cost.
Your base cost (also known as a cost basis) is however much it cost you to acquire your asset, plus any allowable expenditure. Allowable expenditure refers to costs associated with acquiring your asset, for example buy fees or trading fees.
Once you have your base cost, subtract this from your sale price. If you otherwise disposed of your asset like you traded it for another asset and don't have a sale price, use the fair market value of the asset in ZAR on the day you disposed of it instead.
You'll then need to calculate 40% of this gain using the formula above, add this figure to your taxable income and then apply the relevant marginal Income Tax rate to calculate your tax liability.
Remember, each investor gets an annual R40,000 exclusion you'll also need to factor in. This applies to net capital gains and losses.
Let's look at an example.
Zanele bought 1 ETH costing R12,000. She sold her 1 ETH a couple of years later for R73,800. Subtracting her base cost from her sale price, her capital gain is R61,800.
She doesn't need to pay anything on the first R40,000 of her gain thanks to her annual exclusion, leaving her with a gain of R21,800.
40% of Zanele's R21,800 gain is taxable. To work out what she needs to pay, multiply R21,800 by 40%, giving her a taxable gain of R8,720.
Zanele's marginal Income Tax rate bracket is 31%. She will pay 31% tax on R8,720, which is R2,703.2
So in summary, Zanele will pay R2,703.2 in Capital Gains Tax on her gain of R61,800.
Remember, if your gain is viewed as revenue income, you'll pay tax on the entire profit instead, less any allowable business expenses incurred to generate that income.
Crypto cost basis method
The example we used above is pretty simple - but the reality is the majority of crypto investors in South Africa are acquiring and disposing of multiple cryptocurrency coins and tokens in a single financial year. This makes tracking and identifying your base cost much harder and it may have a significant impact on your taxable gains if you have varying base costs.
For example, say you acquired 3 ETH - all at different points in time and all for a different amount each. You later dispose of 1 ETH and hold 2. Which base cost do you use?
This is where cost identification methods come into play. A cost identification method dictates the base cost you use when calculating your capital gains or losses.
As ever, SARS has not released specific guidance on allowable cost identification methods. However, in their general CGT guidance, SARS gives some guidance for permissible methods for determining base cost of identical assets. They state taxpayers must adopt one of two methods:
- Specific identification.
- First In, First Out (FIFO).
It's important to note the weighted average method is limited to specific classes of assets, and the SARS has made it clear that crypto assets are not regarded as shares. Therefore the weighted average method will not be a permissible cost identification method. So, we'll focus on the remaining two permissible methods.
Using the Specific Identification method (Spec ID), the base cost of each asset disposed is specifically identified using data related to the asset. In their example, they highlight using share certificate numbers. Of course, for crypto assets, this example would be more likely to be something like a transaction ID. So, in our example above, provided you could prove with transaction records which unit of ETH you had sold, you could use a base cost of your choosing.
Alternatively, using the FIFO method, it is assumed that the first asset acquired is the asset sold first - hence the name. So in our example above, you would use the base cost of the ETH you first acquired to calculate your gain or loss.
Crypto capital losses
We've focused on gains so far in this guide, but what if you dispose of crypto and make a loss instead?
Well, it's not all bad news. You can utilise capital losses and offset them against your gains to reduce your taxable net gain. If you have no gains to offset them against in that financial year, you may carry forward losses to offset against gains in future financial years. So when you're calculating your capital gains less losses, here's how to do it:
- Calculate your total capital gains for the year. Calculate your total capital losses from the year.
- Subtract your capital losses for the year from your capital gains for the year. Remember, disregard your first R40,000 in gains or losses as your annual exclusion.
- Of the balance remaining, subtract any assessed capital loss brought forward from the previous year of assessment.
- Calculate 40% of your remaining gains. This figure is taxed at the marginal tax rate.
Bed and breakfast rule
Bed and breakfasting is a common Capital Gains Tax avoidance scheme, where an investor sells shares one day (before bed) and repurchases those same shares the next day (at breakfast), with the intention to create an artificial capital loss to offset against capital gains and reduce their overall tax liability.
As such, SARS has clear rules regarding losses generating from bed and breakfasting, stating that if shares are disposed of at a capital loss and bought back within a 45 day period on either side of the disposal, the capital loss must be disregarded and the investor is unable to offset it against gains as it will be ring fenced under section 20A for natural persons as a suspicious enterprise.
Although SARS guidance only covers bed and breakfast sales in regard to shares, it's highly likely that if you're seen to be creating artificial losses by disposing of and reacquiring crypto, you'll be unable to utilise these losses to reduce your gains.
Lost or stolen crypto
Hacks, scams and rug pulls are rife in the crypto market - but there may be a small silver lining when it comes to your taxes.
Unsurprisingly, SARS does not have specific guidance for the tax implications of lost or stolen crypto. However, there is some guidance surrounding capital assets that are destroyed or stolen and in many instances, SARS allows for a variety of involuntary disposals due to destruction or theft to be considered as a capital loss, subject to the normal exclusions and limitations on losses (in particular the ring fencing of losses under section 20A). So there is a possibility, provided you have evidence you no longer have access to your crypto and will be unable to recover it or receive compensation, that you may be able to claim a capital loss as a result of lost or stolen crypto.
This said, in some instances, like rug pulls, where you still hold the crypto and it has depreciated in value to the point it is worthless - the easiest way to realize a capital loss in these instances is to dispose of your crypto by selling, swapping, spending or gifting it, or even sending it to a burn wallet if none of the other disposal options are available.
Crypto Income Tax
With capital gains out the way, let's dive into crypto Income Tax.
As we highlighted above, if your transactions and activities are determined to have the nature of revenue, the entire profit from any disposal will be subject to Income Tax at the applicable marginal tax rate based on your total annual income. This means that your entire profits from transactions that could otherwise be viewed as capital disposals may be subject to Income Tax, including:
- Selling crypto for ZAR, or another fiat currency.
- Swapping crypto for crypto, including stablecoins and NFTs.
- Spending crypto on goods and services.
- Gifting crypto (although there are exceptions to this).
As well as this, there are a number of other crypto investment activities that SARS may consider to be revenue income and therefore the entire proceeds subject to Income Tax upon receipt, including:
- Getting paid in crypto.
- Mining rewards.
- Staking rewards.
- Airdrops of crypto.
- A variety of DeFi investment activities where you earn new coins or tokens - for example staking, liquidity mining and yield farming.
- Creating and selling NFTs as an artist.
As SARS guidance on additional income from crypto is so vague, we would strongly recommend seeking the services of an experienced crypto accountant to help you with calculating and filing your crypto taxes - especially if you're using DeFi protocols.
Income Tax Rate South Africa
SARS has a marginal Income Tax rate for individuals. For the 2023 tax year (1st of March 2022 - 28th February 2023), these rates are:
For the 2024 tax year (1st of March 2023 - 28th February 2024), these rates are:
As you can see - the tax rate you'll pay on crypto investments seen as revenue depends on your total annual income. There are also a number of tax rebates available you may need to factor in.
How to calculate crypto income
There's two calculations you may need - depending on whether you've made a disposal viewed as revenue income or whether you've earned cryptocurrency.
If you've made a disposal of an asset and the profits are viewed as revenue income, you'll need to pay Income Tax on your entire profits. To calculate this, take the cost basis of your crypto and subtract it from the sale price (or fair market value in ZAR on the day of the transaction if otherwise disposed of). Assuming you have a profit and not a loss, you'll pay Income Tax at the applicable marginal tax rate on the entirety of this remaining amount.
Meanwhile, there are a number of crypto transactions - like mining or staking rewards - where the entire proceeds would be seen as revenue income and subject to Income Tax upon receipt. As you have no cost base for these new coins or tokens, take the fair market value of the coins or tokens in ZAR on the day you receive them to calculate your additional income. You'll then pay Income Tax at the applicable marginal tax rate on this amount. If you are deemed as a trader, there may be certain business expenses that the SARS will allow as a deduction to the extent that these expenses were directly incurred to generate this income.
Don't forget either, just because you've already paid Income Tax on mining rewards upon receipt doesn't mean you won't pay tax (Income or Capital Gains Tax depending on your circumstances) when you later dispose of them by selling, swapping, spending or gifting them.
Let's take a look at a couple of examples to clarify.
Let's use the same example of Zanele we used above for our first example.
Zanele bought 1 ETH costing R12,000. She sold her 1 ETH a couple of years later for R73,800. Subtracting her base cost from her sale price, her capital gain is R61,800.
Because Zanele's transaction is deemed to be of revenue nature - her entire R61,800 gain is taxable at her marginal tax rate. She cannot access the 40% inclusion rate, nor the annual exclusion.
Zanele's marginal Income Tax rate bracket is 31%. Multiply her gain by 31% to get R19,158. This is how much tax she'll pay on her gain. As you can see, it's a far cry away from the tax she paid in our earlier example as an investor.
Now let's look at an example of mining.
Andre mines BTC. He is part of a mining pool and receives a daily payout of mining rewards throughout the financial year.
Andre needs to identify the fair market value of BTC in ZAR on the day he received it each day to calculate his additional income, and then add this up for a total figure. Overall, Andre makes R136,000 throughout the financial year from his mining activities.
Andre must add his mining income to this to identify his total annual income and marginal tax rate. This puts his mining income in the 36% marginal tax rate, meaning he'll pay 36% tax on R136,000, or R48,960.
If Andre later sells, swaps, spends or gifts his mined coins, he will be liable to pay Capital Gains Tax or Income Tax on his profits from these transactions too depending on his specific circumstances and how the SARS views his activities.
SARS has not released guidance on the tax implications of a variety of increasingly popular DeFi investment activities like staking, liquidity mining and yield farming. As such, it is highly advisable to seek the help of an experienced crypto accountant if you have DeFi investments.
This said, under the current guidance regarding crypto transactions - the tax treatment of DeFi investment activities would come down to whether the transaction had the nature of capital or revenue. We know from above that if an investor has regular, repetitive activities and intends to make a profit, it is very likely their profits will be seen as revenue income and the entire profits of transactions will be subject to Income Tax with no annual exclusion or applicable inclusion rate. For the majority of DeFi crypto investors, this may be the case.
SARS has not released guidance for the specific tax treatment of NFTs (non-fungible tokens). However, from a tax perspective - NFTs will fall under the broad category of 'crypto assets' and therefore their tax treatment will follow the same guidance as the current SARS crypto tax guidance.
This means the tax treatment of NFTs all depends on the specific transaction, and whether that transaction has the nature of capital or revenue, as well as how SARS views the taxpayer in question. In other words, it will all depend on the scale and intentions of your NFT investment activities.
This means a number of activities could be seen as a disposal of an asset and a percentage of the profits subject to Capital Gains Tax, including:
- Selling an NFT for crypto.
- Swapping an NFT for another NFT.
However, if you're creating and selling NFTs as an artist, and at scale, this would be far more likely to be seen as revenue income and therefore the entire profits would be subject to Income Tax at the applicable marginal tax rate.
Derivatives and CFDs taxes
SARS does not have guidance on derivatives and CFD products for more traditional markets, so it should come as no surprise that there is also no guidance on the tax implications of crypto derivatives and CFD taxes. As always, we recommend seeking the advice of a crypto accountant if you're investing in crypto derivatives or CFDs.
Many countries treat the resulting profit or loss once a position in a CFD or derivative is closed as a capital gain or loss, and tax it as such. But for SARS, it is intent that dictates tax treatment.
With this in mind, the vast majority of people dealing in derivatives and CFDs are doing so to make a short-term profit. As such, it is likely SARS would view any taxpayer dealing in derivatives or CFDs as a trader and therefore all profits would be subject to Income Tax at the applicable marginal tax rate.
With the foundations out of the way... let's take a look at a variety of transactions and the likely tax treatment that would apply for investors with capital assets.
How are different crypto transactions taxed?
We'll dive into the specifics below and everything you need to know, but in brief, based on the minimal existing guidance from the SARS, the likely tax treatments are as follows:
Remember, the tax applicable all comes down to whether the SARS views you as an investor with capital gains or a trader with revenue income.
Which transactions are tax free?
Buying crypto with ZAR
Buying crypto with Rand (or another fiat currency) is tax free. You will, however, need to keep track of your base cost to calculate any subsequent capital gain or loss when you later sell, swap, spend or gift your crypto.
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.
Hodling for the moon? Good news - you'll pay no tax when hodling crypto.
In even better news, the longer you hold an asset, the more likely it is that the subsequent disposal of an asset will be seen as having the nature of capital - giving you a lower tax rate on any profits.
Transferring crypto between your own wallets
It is the disposal of an asset (so a change in ownership) that triggers a taxable event. As such, transferring crypto between your own wallets is tax free.
A caveat though - transfer fees (or gas fees) may not have such simple tax implications. Although SARS hasn't released any clear guidance on this, there is the potential that transfer fees paid in crypto may be seen as spending crypto and therefore a taxable transaction.
Donating crypto to a registered charity
The first R100,000 of property donated in each year by a natural person is exempt from Donations Tax. However, dispositions between spouses, South African group companies and donations to certain public benefit organisations, may be exempt. You may also qualify for a tax deduction should the charity be registered as a Public Benefit Organisation (PBO) with the SARS. The charity should issue a receipt in terms of section 18A of the Income Tax Act.
Which transactions are subject to Capital Gains Tax?
Provided you're viewed as an investor and not a trader, the following transactions would be subject to Capital Gains Tax. Please keep in mind, if you're viewed as a trader, a different tax treatment would apply.
Selling crypto for ZAR
Selling crypto for Rand, or any other fiat currency, is seen as a disposal of an asset and subject to Capital Gains Tax at a maximum effective 18% tax rate.
Remember, investors get an annual exclusion of R40,000 for capital gains, and only 40% of a capital gain is taxable.
It's important to note that SARS may instead view your profit as revenue income and your entire profits would therefore be taxed at your marginal tax rate.
Pieter bought 0.5 BTC for R170,000. He later sells his 0.5 BTC for R250,000. To calculate his capital gain or loss, he needs to subtract his base cost from his sale price.
R250,000 - R170,000 = R80,000. Pieter has a capital gain of R80,000.
As an individual investor, Pieter receives an annual exclusion of R40,000, so he can subtract this from his gain, leaving R40,000.
Pieter's inclusion rate for capital gains is 40% as an individual investor, meaning he only pays tax on 40% of his gain. To calculate this, he multiplies R40,000 by 40%, leaving R16,000. This is Pieter's taxable gain.
Pieter's marginal tax rate is 31%. So he'll pay 31% tax on R16,000, or R4960.
CAPITAL GAINS TAX
Swapping crypto for crypto, stablecoins or NFTs
Exchanging one asset for another is a disposal on an asset according to SARS, and as such, trading one cryptocurrency for another is a taxable event. This includes trading crypto for stablecoins or NFTs as these are all broadly categorized as crypto assets and subject to the same tax treatment.
It's important to note that SARS may instead view your profit as revenue income and your entire profits would therefore be taxed at your marginal tax rate.
Johanna bought 1 ETH for R25,000. She decides to swap her ETH for DAI, a stablecoin pegged at a 1:1 ratio with the USD. At the time of the transaction, the fair market value of her 1 ETH is R34,000 and she receives 2000 DAI. Subtract this figure from her base cost to calculate her subsequent capital gain or loss.
R34,000 - R25,000 = R9,000. Johanna has a capital gain of R9,000.
Johanna has no other capital gains for the year. So she does not have to pay tax on her R9,000 as it is within her annual exclusion amount of R40,000.
As for her new DAI assets, we know Johanna received 2000 DAI for R34,000. To calculate the base cost of each unit, she can divide her total cost by the number of units, meaning each DAI has a base cost of R17. She can use this figure as her base cost for calculating any subsequent capital gains or losses.
CAPITAL GAINS TAX
Spending crypto on goods or services
A growing number of retailers are accepting crypto as a means of payment as crypto moves further towards mainstream adoption. But spending crypto on goods or services might come with a surprise tax bill. Spending crypto is viewed as a barter transaction and therefore a disposal of an asset. Capital Gains Tax or Income Tax may apply, depending on whether you're viewed as an investor or a trader.
CAPITAL GAINS TAX
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. If you're viewed as an investor, Capital Gains Tax would apply. If you're viewed as a trader, Income Tax may apply instead.
However, dispositions between spouses, South African group companies and donations to certain public benefit organisations, may be exempt.
CAPITAL GAINS TAX
Which transactions are subject to Income Tax?
Getting paid in crypto
Whether you are freelancing or working for a company that pays employees in crypto, you can't escape Income Tax.
Any coins received as income are taxed at fair market value in ZAR 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 tax hammer.
If you are operating as an individual it is likely that crypto income will be treated as Income Tax.
SARS guidance states that an individual who mines crypto assets as a trade or business is subject to tax on the income derived from those activities. So you'll pay Income Tax on mining rewards upon receipt based on the fair market value in ZAR on the day you receive them.
If you later dispose of mining rewards by selling, swapping, spending or gifting them, you will also be liable for Capital Gains Tax or Income Tax depending on how SARS views your investment activities.
The SARB (South African Reserve Bank) is clear that staking has distinct tax implications - though the guidance doesn't specify the precise tax implications and whether staking rewards would be subject to Income Tax or Capital Gains Tax.
This said, as you're earning new tokens, it is likely the SARS would view these investment activities as having the nature of revenue income and as such your entire profits would be subject to Income Tax at the applicable marginal tax rate based on the fair market value in ZAR of your staking rewards on the day you received them.
Airdrops of crypto
SARS has not released guidance on the tax implications of airdrops of crypto - however given their stringent guidance around crypto taxes, it is highly likely these events are taxable.
As you're not disposing of an asset, it is more likely airdrops of crypto would be viewed as revenue income and subject to Income Tax at the applicable marginal tax rate based on the fair market value in ZAR of the tokens at the point you received them.
Earning through DeFi protocols
As we highlighted earlier, SARS has no guidance on the tax implications of a variety of DeFi protocols. However, profits from DeFi investments will definitely be subject to Capital Gains Tax or Income Tax.
As the current guidance states that intent to make a profit is key in determining whether a transaction has the nature of capital or revenue, it is likely SARS will view the majority of DeFi investments as having the intention of making a profit. As such, it is likely the majority of DeFi investments may be seen as revenue income and the entire profits subject to Income Tax at the applicable marginal tax rate.
When to report your crypto taxes
The South African tax year runs from the 1st of March to the 28th of February the following year. The tax season opens on the 1st of July and the deadline to report your taxes is the 24th of October for the 2023 tax year.
This means South Africans are currently in the 2022-2023 tax year and reporting on the 1st of March 2022 to 28th of February 2023 tax year. They need to file their 2022 - 2023 annual tax return including their crypto taxes by the 24th of October 2023, for non-provisional taxpayers.
Of course, although the tax deadline isn't until October, you may need to factor in provisional tax ahead of this deadline.
How to file your crypto taxes
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 using SARS eFiling.
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. Alternatively, if you're a trader, there's another section for income earned.
How to calculate your crypto taxes with Koinly
Now you know how crypto is taxed, as well as when and how to report your crypto to SARS, you need to know how to calculate your crypto taxes in order to have all the information you need.
You can do this solo (or with an accountant), or use a crypto tax calculator like Koinly (with an accountant too if you prefer!).
As you can see, there's a lot of potential tax implication and a lot of calculations you might need. This is time consuming at best and downright difficult at worst. Which is why we recommend using crypto tax software to get your crypto taxes done in no time at all...
Here's how it works with Koinly in seven simple steps...
- Sign up for a free Koinly account.
- Select your base country (South Africa), currency (ZAR) and cost basis method (FIFO).
- Connect Koinly to your wallets and exchanges. Koinly integrates with Luno, Valr, Binance, Coinbase, Kraken and hundreds more. (See all)
- Let Koinly crunch the numbers. Make a coffee.
- Ta-da! Your data is collected and your full Complete Crypto Tax Report is generated!
- To download your crypto tax report, upgrade to a paid plan.
- Send your report to your accountant, or complete your SARS submission yourself using the figures from your Koinly report.
What records do SARS want for crypto taxes?
SARS may request records for your crypto transactions to audit your tax return. When it comes to crypto record keeping, SARS is clear they need proof of purchase and sale price. This means you'll need to keep records of:
- Dates of the transactions.
- Details about the asset (the kind of cryptocurrency).
- The value (in ZAR) of the asset at the time of the transaction.
- Details of those involved in the transaction (i.e. wallet address) and the reason for the transaction.
As well as this, SARS guidance states taxpayers should keep all supporting documents for a tax return for a period of five years from the date of the submission as SARS may request these to verify information you've declared.
Koinly can help with your crypto record keeping. Many exchanges only keep your transaction data for a limited time, but Koinly stores your historical transaction data, so should you ever get a request from SARS to share your records, you can easily get what you need from Koinly.
How to legally avoid paying tax on crypto in South Africa
The big question on every crypto investor's mind is how to avoid crypto taxes in South Africa - without facing the wrath of the tax man. Well, you can't legally outright avoid all your crypto taxes - and you shouldn't - SARS tax evasion and fraud penalties are steep. However, there are a number of legal steps you can take to plan your crypto taxes accordingly and reduce your overall tax liability, including:
Utilize the annual exclusion
Each individual taxpayer (not traders) gets an R40,000 exemption from Capital Gains Tax known as the annual exclusion. So your first R40,000 of capital gains each year are tax free.
Utilize tax rebates
There are a number of Income Tax rebates available for South African taxpayers, depending on your age - you could get anywhere between R15,714 to R27,198 as an Income Tax rebate available to all taxpayers.
Track and deduct allowable expenses
Tracking your precise base cost and allowable expenditure can make a big difference to your tax bill if you're an active investor... and Koinly makes this simple by identifying and calculating your fees for you.
The majority of crypto exchanges charge trading fees whenever you buy, sell or trade crypto, and you'll also pay gas fees (transaction fees) when you use DeFi protocols. Provided your fee is an allowable expenditure (so is directly related to acquiring or disposing of an asset), then you can add these fees to your base cost and reduce your subsequent gain.
Harvest unrealized losses and offset against gains
There are two types of losses - realized and unrealized. Realized losses occur when you dispose of an asset and realize a loss, hence the name. Unrealized losses occur when an asset you hold has fallen in value since you acquired it, but you've not yet realized your loss as you haven't disposed of it.
Tracking and identifying unrealized losses ahead of the end of the financial year can help you offset a large capital gain for the year. Harvest them to realize your loss by selling, swapping, spending or gifting them and reduce your gains.
Koinly can help you with this as not only is it a crypto tax tool, but you can also track the performance of your assets in your Koinly dashboard, including your unrealized losses and gains.
Try and be taxed as an investor
Perhaps the best way to reduce your tax liability is to strategize your investment activities so SARS is more likely to view you as an investor, as opposed to a trader.
SARS has given minimal guidance for taxpayers on how to tread this thin line - and it's not in their interests to. Investors have significant tax advantages over traders. For starters, they get an R40,000 annual exclusion for capital gains, and on top of that only 40% of any gain is subject to tax. Meanwhile, traders can access neither of these tax breaks and pay a significantly higher tax rate on the entirety of any profits.
There is no one rule to help SARS recognize you as an investor... but you can put some precautions in place to make it more likely. For example:
- Buy and hold crypto assets for an extended period of time, at least 3 years.
- Avoid revenue generating DeFi protocols like staking, liquidity mining or yield farming.
- Avoid making regular short-term trades or disposals.
A qualified accountant can help you strategize your crypto investment activities in order to improve your odds of being taxed as an investor.
Read next: Crypto Tax Evasion - What are the Risks in South Africa?
Try Koinly crypto tax calculator for South Africa
Koinly is a crypto tax calculator for South African investors and makes crypto tax simple. All you need to do is sync the wallets, exchanges, or blockchains you use via API or by uploading a CSV file of your transactions.
Once you've done this, Koinly will calculate your South African crypto taxes for you including your capital gains and losses, income, expenses, and more. You can then download a crypto tax report to file your crypto taxes yourself, or invite your accountant to your Koinly account to let them check your crypto tax report and file for you!
More questions about crypto tax in South Africa? We have you covered.
When do I pay tax on my crypto?
You’ll pay tax on crypto any time you have a capital gain or revenue income. This includes selling, trading, spending, and gifting crypto, as well as earning crypto, for example, through mining or staking rewards.
Can I deduct my crypto losses?
Yes, you can deduct losses from crypto to reduce your overall taxable gain.
Do I need to pay tax if I haven’t withdrawn my profits from the platform?
Yes. Regardless of whether you hold your fiat (or crypto) profit on an exchange, if you have a profit from selling or trading crypto, you’ll need to pay tax on it.
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.