The Ultimate Crypto Tax Guide for South Africa [2023]]

In South Africa, cryptocurrency is considered as an asset class of an ‘intangible nature’ instead of currency or property. Therefore, crypto in South Africa attracts both Capital Gains Tax and Income Tax.
 

While SARS (South African Revenue Service) has not laid out clear guidelines on how various  crypto transactions are taxed in South Africa, we attempt to clarify the likely outcomes of the most common cryptocurrency transactions in this guide.

We keep an eye out for all updates to crypto tax law in South Africa and update this guide to keep you tax-compliant. Nevertheless, we advise readers to engage with crypto tax accountants and keep a tab on SARS crypto assets and tax guidelines.

Yes, crypto is taxed in South Africa under capital gains tax or income tax. Unfortunately, it’s subjective and depends on the nature of the transaction. If you’ve traded, sold, bought or spent cryptocurrency in South Africa this tax year from a South African exchange or one based overseas, you must declare crypto totals on your income tax return.

Failure to track crypto trades carefully may lead to possible jail time in South Africa. Therefore, we advise crypto asset traders and investors to use an accountant experienced in crypto tax laws of South Africa to assist them when filing taxes.

SARS holds a wide range of collection powers through the Income Tax Act. under the same, third-party service providers are required to submit financial data if called to, both locally and overseas.
 

Users who hold an account with a South African cryptocurrency exchange can be sure that SARS can access their data. For investors who trade on an overseas exchange, SARS can very well attempt to track the information there, too.
 

All this to say that there is no avoiding the fact that investors who are citizens of South Africa need to abide by crypto taxation laws laid down by the SARS.

Even though SARS updated its guidance on crypto in August 2021, it’s still unclear whether a taxable crypto event should be treated to capital gains or income tax. However, knowing that SARS defines cryptocurrency as an asset and financial instrument in a category of its own, we can deduce that crypto is viewed differently than shares and bonds in South Africa.
 

That makes it clear that capital gains tax must apply on crypto transactions, but there are possibilities where income tax rules may apply. SARS has not yet clarified how each crypto transaction must be taxed and what defines an individual investor versus a trader or business entity.
 

In nations where income tax and capital gains tax rates are similar, the nature of trading and investment becomes inconsequential. However, in South Africa, the top marginal personal income tax rate is 45%, whereas the top marginal capital gains tax rate is 18% (45%*40%), which is a significant difference. Additionally, only 40% of the capital gains are considered for taxation. Also, capital losses can be used to offset the capital gains and be carried forward as well. Additionally, capital gains have an R40,000 tax break before tax is calculated on the remaining amount.
 

South African crypto tax consultants hold the opinion that since SARS has demonstrated capital gains tax disclosures only, that is the lay of the land. The revenue collection authority of South Africa hasn’t demonstrated crypto income tax disclosure.
 

Yet, both may apply. Income tax may also be the preferred method for revenue raising for the SARS.

The demarcation lines are blurry. Traditionally, investments are used to add to the income, such as rental property. Or, according to tax legislation, holding an investment for over 3 years qualifies you as an investor, considering the specific investment in question.
 

Cryptocurrency does not follow that script. Even more recent use cases such as DeFi complicate matters further.
 

In South Africa, SARS is more likely to view your crypto transactions from a trading rather than an investing standpoint. Therefore, the key lies in convincing SARS of your intention.
 

If you buy to hold, you could hold crypto as part of a diversified portfolio. Then, you can demonstrate to the SARS that your intentions with crypto assets are no different from those for your other investments.
 

However, if you buy and sell crypto assets more frequently, participate in yield farming and use other crypto interest-earning instruments, you may find it much harder to pose as an investor. Your entire profits may then be considered taxable income.

Investments in crypto in South Africa may be subject to capital gains tax when investors dispose of their crypto assets. In simpler words, if a taxpayer in South Africa gets rid of their crypto by selling, trading, swapping, spending or giving it away, they need to pay capital gains tax on the transaction. This is assuming that the crypto assets are held for a considerable period of time before being disposed of.

Please note that for shares, a holding period of 3 years is specified to qualify for capital gains tax. Since the same is not specified for crypto investments, the same logic can be applied to be more conservative.
 

In case the crypto assets are disposed of within a short time frame, the gains on disposition will be considered under income tax. 

Here are four primary transactions that might be subjected to capital gains tax:

• Selling crypto assets for fiat money such as Rands or Dollars.
• Swapping one cryptocurrency for another, such as Bitcoin for Ether.
• Gifting cryptocurrency.
• Spending crypto assets to buy goods and services.

As discussed above, South African taxpayers pay less capital gains tax in comparison. As an individual investor, you enjoy an annual exclusion of R40,000, after which 40% of capital gains are included in your taxable income, which is then taxed as per your marginal tax bracket or income tax rate.

Let’s see this in action through an example.
 

Suppose you bought 1 ETH in Nov 2017 when its value was R10,000 and sold it in Nov 2021, after keeping it for 4 years, at a value of R70,000. Your capital gain, in this case, is R60,000. Now, you won’t pay anything on the first R40,000 as that much is excluded. However, you will add the remaining R60,000 - R40,000 = R20,000 to your taxable income.

Since 40% of the remaining gain after the exclusion is taxable, let’s calculate it.

40% of R20,000 = R8,000, which is what you will pay capital gains tax on.

If your marginal tax bracket is 31%, you will pay 31% of R8,000 = R2,480 to the IRS.

So, on a profit of R60,000 from trading ETH, your tax liability will be R2,480.

If you make revenue from trading cryptocurrency or mining them, your entire profit is taxable and must be added to your total taxable income. Fortunately, you can take out any legitimate business expenses from it.
 

So, in the previous example, a capital gain of R60,000 will require you to pay 31% of it if that’s your marginal tax rate. The tax amount now becomes a whopping R18,600.

Trading one crypto in exchange for another is a taxable event in South Africa. The SARS perceives crypto swapping as two distinct transactions. First, you are selling the first crypto for its market value of functional Rands. Then, you are purchasing the second crypto asset with those fictional Rands.
 

Even though you never receive any fiat currency in your hand, you still pay tax on the sale of your crypto, as apparent in the first part of the transaction.
 

Let’s say you trade BTC for ETH. The market value of ETH (in ZAR) is used to calculate the gain. If the cryptocurrency you receive cannot be valued, you will account for the fair market value of the crypto you disposed of at the time of the transaction.
 

If you are an investor, your crypto swap will likely be treated to capital gains tax. However, at the time of writing this guide, it is unclear where CGT applies and where Income Tax does.

Unlike the tax treatment of crypto investments, SARS guidelines note that “goods or services can be exchanged for cryptocurrencies”.
 

Transactions of this nature are seen as barter transactions. So, the normal barter rules apply to them. In other words, spending crypto for goods and services is taxed as income to be reported on the ITR12 form.

The SARS views gifting crypto the same way as selling crypto. So, the proceeds are the fair market value of the crypto asset on the date it was gifted. At the time of writing, it is unclear whether capital gains tax or income tax applies to gifting crypto assets.

Suppose you bought 1 ETH for R1,000 in Feb 2020. In June 2020, you gifted the crypto to a friend on their birthday, when the value of 1 ETH is R2,000. The difference between what the crypto cost you and its market value on the day you gifted it is R2,000 - R1,000 = R1,000, which is the gain you made, even though you didn’t sell the crypto for Rands or Dollars.

Your gain of R1,000 will attract tax.

If you receive crypto as a gift or donation, your gain isn’t immediately taxed. In fact, receiving crypto as a gift or donation is inherently tax-free. However, when you dispose of the asset- sell, exchange, trade or gift it- then you pay taxes.

You can’t escape the income tax from getting paid in crypto, as a freelancer or an employee. In a majority of countries where crypto is taxed, coins received as income are taxed at market value at the time you obtain them. Therefore, we advise you to declare this income on your annual tax return to stay tax compliant.

If you operate as an individual, it is highly likely that you will pay income tax on your crypto income. However, SARS lacks guidelines on whether capital gains tax or income tax applies in these scenarios.

How SARS treats crypto mining activity from a tax perspective falls under both normal cash and barter transaction norms. Crypto miners first pay income tax when they acquire the cryptocurrency. Miners can reduce relevant expenses from crypto mining income.

Furthermore, SARS’ 2018 guidelines note that until the acquired cryptocurrency is exchanged or sold for cash, it is held as a trading stock that can be subsequently traded through either a normal cash trading or a barter transaction.

Staking rewards resemble dividends and are typically subject to income tax around the world. If you operate as an individual investor, SARS will probably subject your gains to income tax. 

In most nations with laws around cryptocurrency taxes, Airdrops are typically seen as assessable income at the time of the airdrop. So, if you’re sent R1,000 worth of tokens in an airdrop, you will report it as taxable income.
 

If you are an individual investor in South Africa, the SARS will likely apply income tax to your airdrop income. 

Any crypto you receive in exchange for signing up or referring users to a product/service is taxed as income. Referral bonuses are analogous to the concept of commissions.
 

If you operate as an individual investor in South Africa, chances are the SARS will subject your bonus income to income tax. However, at the time of writing, it is unclear whether your referral and sign-up bonuses will be subject to capital gains tax or income tax.

DeFi interest resembles the interest we earn from bank accounts in the world of traditional finance. Lending crypto assets and generating interest on the same adds to the taxable income. This is also similar to mining coins and is subject to similar rules.
 

You need to declare the income from DeFi interest on your Income Tax statement as ordinary additional income.
 

If you operate as an individual investor in South Africa, you will likely pay Income Tax against your DeFi interest earned. However, it is unclear at the time of writing whether the SARS will subject DeFi interest to CGT or Income Tax.

As in most parts of the world, buying crypto doesn’t invite taxes in South Africa. Crypto purchases are also VAT-free.

However, investors and crypto traders are advised to maintain accurate records of purchase transactions to calculate the cost basis of a crypto asset when disposing of it to calculate taxes effectively.

Binocs not only helps calculate crypto tax but also consolidates crypto transactions in one portfolio so users can easily keep track of crypto purchase and sale transactions.

Taxpayers in South Africa don’t need to pay any taxes on the cryptocurrency they buy and HODL (Hold On for Dear Life), even as the worth of the crypto asset increases. Only selling, spending, exchanging, trading or gifting crypto creates a taxable event.

Moving crypto between one’s own wallets or accounts doesn’t create a taxable event or invite capital gains tax in South Africa. However, it’s critical to keep a record of these movements as an automated crypto tax management software such as Binocs can use these movements to calculate the cost basis of a crypto asset.
 

Let’s see this through a demonstration.
 

Suppose you buy 4LTC for R500 on Coinbase. Later, you choose to move your asset to your private LTC wallet. Again, after a few days, you transfer the LTC assets to your Binance account and finally sell them for R4,000, earning a profit of R3,500.

If you use an automated crypto portfolio management system such as Binocs, you will need to link your Binocs account with all three wallet accounts. If let’s say, you fail to link your Binance account with Binocs, the tax management app will have a blind spot and won’t identify the funds you transfer into your Binance wallet. However, if your wallets are all in sync and integrated with Binocs, it will match the transfer by tracing it from your Luno to your wallet and then to Binance. This will produce an accurate tax report.
 

If for any reason, you lose access to your private LTC wallet, you will need to make manual changes on the Binocs app and mark the transfer from Coinbase as invalid to ensure Binocs doesn’t realize gains on it and direct you to pay taxes twice.
 

You would then need to change the value of the incoming transaction to Binance to identify the cost basis of the outgoing transfer from Coinbase.

SARS would like your crypto tax activity clearly defined in terms of income and capital gains. Therefore, taxpayers in South Africa must declare both as part of their annual tax return in the same way they report regular income, gains and losses.

Tax deadline in South Africa
 

The South African tax year starts on March 1 every year and ends on February 28 the following year. The tax season opens each year on July 1 and the deadline for the past tax year is October 24, 2022.

Once you calculate your crypto tax totals manually, with an accountant or through an automated crypto tax management app like Binocs, the easiest way to file your taxes is online. On your tax return, there’s a section under which you can declare capital gains and disposals made in the financial year. This section holds a particular reference to cryptocurrency transactions.
 

If you are involved in cryptocurrency transactions as a trader, there is another section for income earned through trading.

See below for examples.

As an investor, a taxpayer in South Africa can use the FIFO (First In First Out) method to calculate capital gains on their crypto investments. This means the asset you bought first will be disposed of first. Investors can use this accounting method as long as they individually identify their crypto assets.

Crypto tax reporting is an uncharted path for every investor, trader, or even tax accountant in South Africa. However, that doesn’t mean that the SARS will cut you slack.

So, here are four ways to effectively file crypto taxes in South Africa to stay tax compliant.

• The easiest method is to use a crypto tax management system like Binocs that automatically tracks all your transactions, allows you to edit transactions if need be, and saves you a lot of time and effort in filing crypto taxes.

• Use a crypto tax calculator like Binocs to create an automated report of crypto transactions. Add the necessary information to your tax return and file it manually yourself.

• Engage a tax accountant to work out your crypto activity by passing on your transaction history, transaction statements, etc. Allow your accountant to work it out for you and file crypto taxes.

• Work out the entire crypto tax filing activity yourself.

Now that you are aware of the process of calculating and submitting your taxes, let’s understand in greater detail South Africa’s crypto tax rules.

SARS considers crypto donations to be similar to regular donations as in they are tax deductible if you donate to a registered charitable organization. Donors can calculate the dollar price of the crypto asset at the time of donation and claim that amount as a deduction on their tax return.

In case you lose your private key, or your crypto asset is stolen, you can claim a capital loss in South Africa, given you can provide the following pieces of evidence:

• The wallet address linked to the private key.

• The day you acquired the key and the day you lost it.

• The cost of acquiring the key.

• Proof that the wallet was controlled by you.

• The amount of crypto assets that were in your wallet when you lost the key.

• Proof that you possess the hardware on which the wallet is stored.

• Transactions to the wallet from an exchange that is linked to your identity.

No matter what kind of tax you’re paying, tax rules in South Africa allow investors to deduct costs. For instance, in case you pay income tax, you can claim expenses on your taxes. If you pay capital gains tax, you can deduct the cost of purchasing the crypto from the taxable amount. So, you only pay CGT on the profit you’ve made on your crypto investments.
 

To minimize your tax liability, you must know what losses and expenses you can offset against your taxable income. But first, figure out whether you will be classified as someone who invests in crypto or someone who runs a crypto trading business.
 

When disposing of the crypto, it’s key to know if it was a personal use asset. The longer you hold on to a crypto asset, the more unlikely it is to be a personal use asset, even if you subsequently spend it to buy goods or services for personal use. This is because you have likely profited from the appreciation of the crypto’s value during the holding period.
 

Therefore, we advise investors in South Africa to use this provision carefully. If you somehow end up under investigation by the SARS, the burden of providing evidence will fall on you to prove that the crypto asset was for personal use. 
 

It’s also worth noting that any capital losses you incur on personal use assets cannot be written off against capital gains ever.
 

If you use an automated crypto tax management system such as Binocs, you can write it off as a business expense under ‘other expenses’.

An effective and automated way to file your crypto taxes is to use a crypto tax management app like Binocs.
 

• Once you integrate all your accounts (exchanges and wallets) with Binocs, it harmonizes and identifies all income tax and capital gains/losses transactions automatically.

• Then, Binocs computes the cost basis and the profits and losses realized for these transactions. Based on the holding period, capital gains will be appropriately treated as short-term or long-term. 

• You can then review these transactions and add missing transactions if any. You may also edit or label the transactions or assign a cost basis to each transaction based on your preference.

• Finally, you can download your tax forms based on the taxable income and short-term and long-term capital gains calculated from the above transactions.
   

Binocs saves you a lot of time and hassle of filing crypto taxes in South Africa.