Trying to report your crypto taxes can be difficult anywhere in the world — South Africa is no exception.
Tracking gains, losses, and income can be difficult due to cryptocurrency’s unique properties. In addition, the South African Revenue Service (SARS) has put out limited guidance on how cryptocurrency is taxed.
In this guide, we’ll break down everything you need to know about how cryptocurrency is taxed in South Africa and break down a simple process that can help you report your taxes in minutes.
Profits from cryptocurrency investing and trading activity are subject to tax. However, you may be taxed differently depending on the specific nature of your activity.
Generally, if you’re considered an investor, your profits will be subject to capital gains tax. If you’re considered a trader, your profits will be subject to income tax.
In addition, there are specific transactions — such as earning mining and staking income — that will likely be subject to income tax regardless of whether you are a trader or investor
Because cryptocurrency transactions are pseudo-anonymous, many investors assume that evading taxes is fairly easy. This is not true.
The South African Revenue Service (SARS) has the ability to request customer information from major cryptocurrency exchanges like Coinbase and Binance.
In addition, transactions on blockchains like Bitcoin and Ethereum are publicly visible and permanent. Tax agencies around the world use ‘data matching’ to match blockchain transactions to known individuals.
Determining whether you should pay income tax or capital gains tax on a specific transaction can get complicated.
Cryptocurrency transactions are categorized as a ‘trade’ or ‘investment’ on a case-by-case basis.
In addition, SARS hasn’t yet provided guidance on how cryptocurrency trades are taxed. However, we can use existing guidance on stocks and equities to better understand how crypto transactions will be classified.
What was your motive for buying cryptocurrency?: If you bought cryptocurrency for the purpose of earning interest and passive income for the long-term, it’s likely to be considered an investment. However, if you bought cryptocurrency for the purpose of selling it at a higher price in the near future, it’s more likely to be considered a trade.
What’s the frequency of your crypto transactions: In the past, SARS has stated that profits on investments held for longer than 3 years will likely be subject to capital gains tax. It's likely that short-term profits on crypto will be subject to income tax.
If your transactions are seen as investments and not trades, you’ll pay capital gains tax for the following transactions:
If you’re considered a trader, your gains from cryptocurrency will be considered income and taxed accordingly.
In addition, the following transactions will likely be subject to income tax regardless of whether you are in the trader or investor category.
It’s likely that the following events will not be considered taxable.
Meanwhile, the maximum effective tax rate on capital gains is 18% for those in the top income bracket.
Currently, income tax in South Africa ranges between 18-45%. Here’s a chart that shows current tax rates for the year.
Meanwhile, the maximum effective tax rate on capital gains is 18% for those in the top income bracket.
South Africa has a system of progressive taxation. You’ll pay higher taxes as you progress through different taxes.
To better understand the concept, let’s look at a trader who’s earned 300,000 ZAR of income for the year.
If you’re an investor, you’ll pay taxes based on your capital gains on cryptocurrency. This is essentially how much profit you’ve made on cryptocurrency for the year.
To calculate your capital gains, you’ll need to determine the base cost of your asset. Typically, this is how much you paid to acquire your cryptocurrency plus the cost of any relevant fees
Then, you’ll need to determine your proceeds. This is typically the sales price of your asset minus the cost of any relevant fees.
To better understand how this works, let’s take a look at an example.
Once you’ve determined your capital gain, you can use the following formula to calculate how much of your capital gain is taxable.
If you’ve bought the same cryptocurrency multiple times, it can be difficult to calculate your capital gains. Consider the following example:
In this case, the answer is dependent on the cost basis method that Jane chooses.
Based on South Africa’s previous guidance on capital gains tax, it’s likely that you can use first-in first-out and Specific Identification for cryptocurrency.
With FIFO: With FIFO, the first BTC that Jane acquired is also the first one that she disposes of. In this case, her total capital gain is 100,000 ZAR (300,000 - 200,000).
With Specific ID: With the Specific Identification method, Jane can choose which BTC she disposes of as long as she can specifically identify the unit she is disposing of.
If Jane has kept accurate records of her crypto transactions, she can choose the last BTC she acquired as the BTC that she is disposing of. In this case, her total capital gain is 60,000 ZAR (300,000 -240,000).
There are several strategies you can use to legally reduce your tax bill in South Africa.
There are several strategies you can use to legally reduce your tax bill in South Africa.
While losing money on cryptocurrency is never the goal, selling your cryptocurrency at a loss comes with a silver lining — tax savings.
Remember, capital losses can offset capital gains during the tax year. If you have a net loss for the year, you can carry your loss forward and offset gains in future tax years.
The first R100,000 of property that you donate is free from Donations Tax! In addition, donating cryptocurrency to charities registered as a Public Benefit Organization (PBO) is considered tax-deductible.
Remember, fees related to acquiring or disposing of your cryptocurrency can be added to your base cost. This can reduce your tax bill in a disposal event.
Buying cryptocurrency with ZAD or another fiat currency is not considered a taxable event.
Selling cryptocurrency is considered a taxable event. You’ll be taxed depending on how the price of your crypto changed since you originally received it.
You’ll recognize income or capital gains depending on whether you’re classified as an investor or a trader.
It’s likely that crypto-to-crypto trades will be considered a taxable disposal. You’ll be taxed based on how the price of your crypto has changed since you originally received it.
You’ll recognize income or capital gains depending on whether you’re classified as an investor or a trader.
Spending cryptocurrency is considered a taxable disposal. You’ll be taxed based on how the price of your crypto changed since you originally received it.
You’ll recognize income or capital gains depending on whether you’re classified as a trader or an investor.
Spending cryptocurrency is considered a taxable disposal. You’ll be taxed based on how the price of your crypto changed since you originally received it.
Pro Tip: The Bed and Breakfast Rule
Remember, SARS does place restrictions on claiming capital losses. You are not allowed to claim capital losses on stocks and cryptocurrency if you buy back the same asset 45 days before or after a disposal.
When you receive payment in cryptocurrency in compensation for work, you’ll recognize income based on the fair market value of your crypto at the time of receipt. If you dispose of your crypto in the future, you’ll be taxed based on how the price of your crypto changed since you originally received it.
If you earn rewards from cryptocurrency mining, you’re liable for income tax based on the fair market value of your crypto at the time of receipt.
If you dispose of your mining rewards in the future, you’ll pay additional taxes depending on how the price of your crypto changed since you originally received it.
At this time, SARS hasn’t put out concrete guidance on whether staking income is considered income or capital gains.
It’s likely that staking income is considered income based on the fair market value of your crypto at the time of receipt. If you dispose of your staking rewards in the future, it’s likely that you’ll pay additional taxes depending on how the price of your crypto changed since you originally received it.
While SARS hasn’t put out guidance on how cryptocurrency airdrops are taxed, it’s likely that airdrop rewards will be taxed as income based on your crypto’s fair market value at the time of receipt.
If you dispose of your airdrop rewards in the future, you’ll be taxed depending on how the price of your crypto has changed since you originally received it.
SARS has not put out guidance on how NFTs are taxed.
SARS has not put out guidance on how NFTs are taxed.
It’s likely that NFTs are subject to the same rules as other crypto-assets and may be subject to capital gains tax or income tax based on the specific nature of the transaction.
If you earn revenue from NFTs that you created, it’s likely that you’ll pay income tax on your profits from primary and secondary sales.
According to SARS, it’s important to keep records of the following information for at least 5 years.
Pro Tip: If you haven’t kept records of your cryptocurrency transactions, you can plug in your exchanges and wallets to CoinLedger and let the platform find this information for you!
Once you’ve collected accurate records of your cryptocurrency income and capital gains, you can report your crypto taxes through SARS eFiling.
You will see a section to report your capital gains and losses.
If your cryptocurrency transactions fall into the trading category, you can report your profits as income.
If you’ve transferred your crypto between different wallets and exchanges, it can be difficult to keep track of your base cost as well as your gains and losses from cryptocurrency.
Luckily, there’s an easier way to track your cryptocurrency taxes. With crypto tax software like CoinLedger, you can aggregate your cryptocurrency transactions and generate a comprehensive tax report in three simple steps.
Looking for an easy way to generate a crypto tax report? CoinLedger can help. More than 300,000 investors around the globe use the platform to take the stress out of tax season.
Just connect your wallets and exchanges and CoinLedger can help you generate a SARS-compliant tax report in minutes.
Step 1: Import your transactions from your exchanges and wallets.
Step 2: Watch the platform calculate your income and capital gains.
Step 3: Generate your tax report!
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