On the 1 June 2021 Moneyweb published an article by Ciaran Ryan titled “SARS turns on the heat, asks crypto exchanges for certain customers’ information”. This is an interesting development as the South African Revenue Service (“SARS”), like other revenue authorities around the world, are under pressure to collect taxes and they know full well not all South African taxpayers have been declaring their crypto income.
As part of the 2021/22 budget review SARS was allocated an additional R3 billion to modernise its technology and infrastructure systems and to allow it to participate meaningfully in global tax compliance initiatives. In February 2021 the SARS commissioner - Edward Kieswetter – confirmed undisclosed cryptocurrency holdings was a big area of focus for the tax agency. It is therefore not surprising that SARS is looking at crypto exchanges.
In a joint statement released on 31 May 2021 South Africa’s three largest crypto exchanges – AltCoinTrader, Luno, and VALR confirmed that they had been approached by SARS as part of a tax risk assessment exercise on South African residents involved in “the mining, speculation and/or investment in crypto assets”. SARS has applied section 46 of the Tax Administration Act (“TAA”) which may allow SARS to request relevant material for the purposes of the administration of a Tax Act.
As with any other asset class, investors must understand their tax obligations in relation to their crypto investments, and plan accordingly. Based on our work with clients, it’s clear that a major misconception is that a ‘tax event’ only occurs when the cryptocurrency is withdrawn and converted into legal tender, but this is not correct. If a trade is made between different crypto assets, say, Bitcoin and Ethereum, the notional profits of that transaction would also be taxable.
It is important to note SARS doesn’t view cryptocurrency as a currency. If a taxpayer made money from a cryptocurrency investment, it can either be taxed as income, or attract capital gains tax. This depends on whether the taxpayer is an active trader in cryptocurrencies or investing for the long term. It is also important to note that if a taxpayer is paid for their services in cryptocurrency this would be considered remuneration and be subject to normal tax.
In the 2020 tax return SARS included questions about cryptocurrency investments in the capital gains tax section of the tax return. This means that if a taxpayer did not declare their gains or losses in the tax year there would be a non-disclosure on their tax return making them liable to additional tax, interest and penalties.
If a non-disclosure on a tax return has occurred a taxpayer does
have the option of making a voluntary disclosure application (“VDP”) in terms of Chapter 16, Part B of the TAA. By making a valid VDP application SARS is precluded from levying understatement and administrative non-compliance penalties and pursuing criminal prosecution. The tax and interest will however remain payable.
It is important to note is that if SARS initiates an audit or investigation into a taxpayer’s affairs which relates to the default (non-disclosure of crypto income), they will be precluded from applying for a VDP. As SARS has or will have access to certain information from the crypto exchanges time is of the essence to make an application before an unwelcome SARS letter is delivered to you initiating an audit or investigation.
If you need assistance with applying for a VDP please contact your local
Moore Office.