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Cryptocurrency Gains or Losses Part of Taxable Income, South African Taxpayers Told

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South African taxpayers are now required to declare gains or losses from their cryptocurrency trading as part of their taxable income, the taxman has said. Income from cryptocurrencies fall under normal tax rules and may be liable for capital gains tax, the South African Revenue Service (SARS) has declared.

“The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued.  Failure to do so could result in interest and penalties,” SARS said in a statement.

Cryptocurrencies are Intangible Assets

SARS has now clarified that it treats cryptocurrencies as “assets of an intangible nature” for purposes of income tax. They are not however seen as currencies.

SARS

“In South Africa, the word “currency” is not defined in the Income Tax Act.  Cryptocurrencies are neither official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax,” the agency said.

While they are not regarded as currencies, cryptocurrencies may nevertheless be valued to ascertain an amount received or accrued under the gross income.

Gains from cryptocurrency holdings and investments may, therefore, be regarded as capital in nature from which taxpayers can claim expenses and deductions from accruals or receipts.

The move comes after calls from the public for the agency to provide clarity on the matter.

“There is an existing tax framework that can guide SARS and affected taxpayers on the tax implications of cryptocurrencies, making a separate Interpretation Note unnecessary for now,” SARS noted.

Ethereum and Bitcoin

Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings, SARS advises.

 Mined Coins Regarded as Trading Stock

Mined coins will be regarded as trading stock up to the point they are sold say in a cryptocurrency exchange or exchanged for cash, the statement says.

Where cryptocurrencies are exchanged for goods or services, this is regarded as a barter transaction and normal barter transaction rules apply.

Sales will not, however, attract value-added tax for now although this may come under review in the 2018 budget.

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