Cryptocurrency & South African Tax

Cryptocurrency & South African Tax

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2024-12-23T09:33:06+0800

In regular tax terms, income earned from transactions involving cryptocurrency can be taxed as part of overall income, known as “gross income.” Alternatively, these profits may be seen as capital gains, as outlined in the Eighth Schedule to the Act, falling under Capital Gains Tax (CGT). Determining whether income or capital in nature follows existing legal precedents, which are well-established. Taxpayers can claim expenses related to cryptocurrency transactions, provided these expenses are incurred to generate income and for business purposes. Adjustments to the base cost can be made within the CGT framework. Gains or losses from cryptocurrency transactions can be broadly categorized into three scenarios, each potentially leading to different tax implications: 1.⁠ ⁠Cryptocurrency can be obtained through mining, which involves verifying transactions in a computer-generated ledger by solving complex algorithms. 2.⁠ ⁠Investors can trade local currency for cryptocurrency (or vice versa) through cryptocurrency exchanges, which function as markets for these assets, or through private transactions. 3.⁠ ⁠Goods or services can be exchanged for cryptocurrency, considered a barter transaction subject to standard rules governing such exchanges. The first point of call is to determine the intention of the transaction, once that has been tested and ascertained, declaration to SARS will be guided on an income tax basis or a capital gains tax basis. The maximum marginal rate for individuals is 45%, and 27% in a company capacity. Alternatively, CGT at the applicable inclusion rates of 40% and 80% respectively apply, and thereafter taxed according to SBC rates or the company tax rate of 27%. The onus is on taxpayers to declare all crypto assets-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties. If you would like an in-depth explanation, please get in touch with us. #stratfinn #crypto #cryptocurrency #bitcoin #ethereum #dogecoin #solana #tax #cgt #income #assets #sars