The Tax Implications When Selling Bitcoin

The Tax Implications When Selling Bitcoin

Taxpayers who think cryptocurrency trading is an easy way to make money will be surprised as SARS looks at how to tax crypto trading activities.

In South Africa, the term crypto asset, not cryptocurrency, is used. This means that taxes related to the disposal of cryptocurrencies are in line with the same income tax rules that apply to the disposal of shares or unit trusts. Currently, the Income Tax Act does not contain special rules for cryptocurrencies.

The disposal of cryptocurrencies is a taxable event similar to the sale of shares. Acquiring goods or services with cryptocurrencies is deemed to be a disposal or sale of an asset.

If a taxpayer has held an equity share for at least three years, the gains from the disposal of the share are to be capital in nature. The definition of an equity share includes shares in companies or interest in a portfolio of a collective investment scheme. It does not include crypto assets. Thus, the sale of cryptocurrencies would be subject to income tax rather than capital gains tax.

The Reserve Bank has started work on new tax and financial regulatory laws that will apply to cryptocurrencies. This is expected to take between 12 and 18 months to finalize. The framework will ensure compliance with anti-money laundering and countering the financing of terrorism measures, exchange control regulations, and tax laws.

In the meantime, due to the volatile and high-risk nature of cryptocurrencies, it’s highly unlikely that SARS will deem gains as capital, and any profits would rather be seen as normal income and taxed at normal income rates. At least, losses can be offset against future crypto profits.