In this guide, we’ll break down everything you need to know about how cryptocurrency is taxed in South Africa. We’ll also share a step-by-step process to help you report your taxes in minutes.
In South Africa, cryptocurrency is subject to income tax and capital gains tax.
Disposing of cryptocurrency may be subject to capital gains tax or income tax depending on whether the transaction is considered an ‘investment’ or a ‘trade’. We’ll go into more detail about the differences between the two later in the article.
Generally, earning cryptocurrency — through means such as mining and staking — is subject to income tax.
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Because cryptocurrency transactions are pseudo-anonymous, many investors assume that evading taxes is fairly easy. This is not true.
The Income Tax Act requires cryptocurrency exchanges and other financial institutions to report data to the South African Revenue Service (SARS). If you’ve traded crypto on an exchange like Binance and Coinbase, it’s likely that SARS already has your information.
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.
Cryptocurrency transactions are categorized as a ‘trade’ or ‘investment’ on a case-by-case basis. As a result, determining whether you should pay income tax or capital gains tax on a specific transaction can get complicated.
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.
How long did you hold your cryptocurrency?: In the past, SARS has stated that profits on stocks held for longer than three years are considered capital gains. However, it’s important to note that this criteria does not apply to cryptocurrency. At this time, there’s no set criteria for when cryptocurrency holdings are considered capital gains rather than income. The longer you hold your crypto, the more likely it is that your gains from disposals will be considered capital gains.
What’s the frequency of your crypto transactions?: The higher the frequency of your transactions, the more likely it is that you’ll be considered a trader. If you have thousands of cryptocurrency transactions in a given tax year, it’s likely that your transactions will be considered trades rather than investments.
If your transactions are seen as investments and not trades, you’ll pay capital gains tax for the following transactions:
If your transactions are considered trades, all profits from cryptocurrency disposals 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.
Currently, income tax in South Africa ranges between 18-45%. Here’s a chart that shows current tax rates for the year.
The minimum effective tax rate on capital gains is 18% for investors in the lowest tax 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.
It’s likely that the following events will not be considered taxable.
There are several strategies you can use to legally reduce your tax bill in South Africa.
Some taxpayers choose to optimize their trading strategy to ensure that their profits will be recognized as capital gains, not income. This could mean reducing your total amount of transactions for the year and holding your cryptocurrency for a longer period.
If you’re an individual investor, your first R40,000 of capital gains is completely tax-free!
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.
According to SARS, it’s important to keep records of the following information for at least 5 years.
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’re an investor, you’ll pay capital gains tax on your cryptocurrency disposals. This is essentially how much profit you’ve made on selling and trading away your crypto-assets.
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.
You can use the following formula to calculate your capital gains and losses.
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.
Remember, you should also factor in the 40,000 ZAR capital gain exclusion available for all South African taxpayers!
If you’re considered a trader, your gains from cryptocurrency disposals will be subject to income tax.
Regardless of whether you are considered a trader or not, there are certain types of cryptocurrency earnings that will be subject to income tax — such as mining and staking rewards. This is considered income based on the fair market value of your crypto in ZAR at the time of receipt.
If you dispose of your cryptocurrency rewards in the future, you may be subject to additional tax based on how the price of your crypto has changed since you originally received it.
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.
Step 1: Import your transactions from your exchanges and wallets.
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Step 2: Watch the platform calculate your income and capital gains.
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Step 3: Generate your tax report!
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If you’ve bought the same cryptocurrency multiple times, you may have trouble calculating your capital gains and losses. Consider the following example.
To answer this question, you’ll need to know Jane’s base cost (her original cost for acquiring her cryptocurrency). Her total capital gain will vary depending on what accounting method she chooses to calculate her base cost.
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 she has kept records of her transactions, she can choose the last BTC she acquired to minimize her total capital gain. In this case, her total capital gain is 60,000 ZAR (300,000 -240,000).
In South Africa, the tax deadline runs from March 1st to February 28th of the following year. For non-provisional taxpayers, the deadline to report your taxes falls on October 24th.
Remember, cryptocurrency disposals may be taxed differently depending on whether they are characterized as ‘trades’ or ‘investments’. You should keep this in mind as you look through the different scenarios listed below.
Simply holding cryptocurrency is not considered a taxable event.
Buying cryptocurrency with ZAD or another fiat currency is not considered a taxable event.
However, you should keep a record of your cryptocurrency purchases so that you can easily calculate your tax liability in the case of a future disposal.
Transferring cryptocurrency between wallets that you own is not considered a taxable event.
However, you should keep records of these wallet-to-wallet transfers in case you dispose of your cryptocurrency in the future. Accurate records will help you easily calculate your capital gains and losses.
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.
Trading one cryptocurrency for another is 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.
Disposing of your cryptocurrency at a loss comes with tax benefits.
Cryptocurrency losses can be used to offset your capital gains from cryptocurrency and other assets. If you have a net loss for the year, you can roll forward your loss into future tax years.
Want to see how much you’ll pay in capital gains tax after factoring in your losses? Follow this three-step process.
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 considered 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.
At this time, SARS has not given guidance on whether you can write off losses on lost & stolen cryptocurrency.
In the past, SARS has stated that involuntary disposals of capital assets due to theft or destruction can be written off as capital losses. It’s likely that these same rules apply to crypto-assets as well.
If you are holding on to a crypto-asset that has become worthless, the easiest way to claim tax benefits is to simply dispose of it and claim it as a loss on your taxes.
Generally, gifting cryptocurrency is subject to tax in South Africa. In most situations, you’ll recognize a taxable gain depending on how the price of your crypto has changed since you originally received it.
There are some situations where cryptocurrency gifts are tax exempt. Examples include gifting your cryptocurrency to your spouse or to certain public benefit organizations.
At this time, SARS has not released guidance on how DeFi is taxed.
It’s likely that DeFi transactions will be taxed similarly to other cryptocurrency transactions.
Gains and losses from DeFi are likely to be subject to capital gains tax/income tax depending on whether you are a trader or an investor.
Earning cryptocurrency from DeFi protocols is likely subject to income tax.
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 whether you are classified as a trader or an investor.
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.
Looking for an easy way to generate a crypto tax report? CoinLedger can help. More than 500,000 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.
Let’s cap things off by answering some frequently asked questions about cryptocurrency taxes.
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This guide breaks down everything you need to know about cryptocurrency taxes, from the high level tax implications to the actual crypto tax forms you need to fill out.
