The South African Reserve Service (SARS) has announced that it will be applying normal income tax rules to cryptocurrencies.
In an announcement released by the agency, SARS declared that the onus was on the taxpayer to declare all digital currency-related taxable income in the tax year it was received or accrued. It added that a failure to do so could see taxpayers being faced with interest or penalties.
SARS goes on to state that due to the increased attention and speculation regarding the future of cryptocurrencies it is required to provide direction as to how South Africa treats the market for tax purposes.
In South Africa, the word ‘currency’ is not defined in the Income Tax Act (the Act). Cryptocurrencies are neither official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. As such, cryptocurrencies are not regarded by SARS as a currency for income tax purposes or Capital Gains Tax (CGT). Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.
SARS goes on to add that:
Whilst not constituting cash, cryptocurrencies can be valued to ascertain an amount received or accrued as envisaged in the definition of ‘gross income’ in the Act. Following normal income tax rules, income received or accrued from cryptocurrency transactions can be taxed on revenue account under ‘gross income’.
This announcement from SARS comes at a time when governments around the world are taking an increased interest in the digital currency market and its tax implications.
The U.S. Internal Revenue Service (IRS) is also cracking down on cryptocurrency tax payers after it won a lawsuit against San Francisco-based exchange Coinbase in November. The exchange was ordered to hand over the records of more than 14,000 customer records between 2013 and 2015 to determine whether users were deliberately avoiding paying tax on their cryptocurrency assets.
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