Research on this matter is relatively limited in South Africa. Studies are thus needed and are relevant to address the South African taxation implications of bitcoin exchange transactions as countries such as Australia and the USA have already issued guidelines to taxpayers in this regard. The primary research objective of this study was to comparatively explore how Bitcoins should be classified in SA from a tax perspective.
A comparative study was therefore performed to understand the current tax position in SA with regards to the classification of Bitcoins either as an asset or currency for Bitcoin transactions that may result in taxable income.
The research has limitations in that it did not look at cross-border tax evasion, collection of taxes, permanent establishment rules and the enforcement of taxes on Bitcoin transactions. Tax legislation is vast in SA and therefore every type of transaction could not be analysed due to the extensive nature of tax.
Cryptocurrency and tax in South Africa explained | TechRadar
It was found that the current SA legislation does make provision for the classification of Bitcoin. The South African tax agency also clarifies questions on which accounting methods are acceptable. Cryptocurrency is not regarded as a share and therefore SARS does not treat it as the average for the year.
In other words, you should not use the average cost or last in, first out LIFO accounting method. To be conservative, a first in, first out approach is best, although specific identification is not excluded by the tax rules. This transaction is regarded as a barter transaction.
Therefore the normal barter transaction rules apply.
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SARS tax treatment of crypto mining activity falls under both normal cash and barter transaction rules. However, cryptocurrencies are regarded by SARS as assets of an intangible nature. When it comes to Capital Gains Tax CGT , SARS says that gains or losses in relation to cryptocurrencies can broadly be categorised with reference to three types of scenarios, each of which potentially gives rise to distinct tax consequences:.
This article is meant only as information and should not be taken as financial advice. For tailored financial advice, please contact your financial adviser.
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BITCOIN: THE TAX QUESTION
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