Any individuals in South Africa who are doing more than only buying and holding cryptocurrency should be aware of the cryptocurrency tax implications imposed on this currency. The Income Tax Act defines cryptocurrency as a “financial instrument”. As a result, all the same income tax provisions that apply to financial instruments, will also apply to cryptocurrencies.
Some misconceptions surrounding cryptocurrencies in South Africa include the idea that buying and selling of this currency will only incur capital gains tax, and that it is only taxable once you “cash-out”. This is, however, not necessarily the case.
The taxpayers’ intention at the time of purchasing the cryptocurrency determine how it is taxed. If you intend to mostly trade these digital assets for profit-making purposes, then this currency is considered “trading stock” and all profits thereon will be taxed at the applicable income tax rates. If you intend to invest for long term gain, then this currency will be considered “capital assets” and will be taxed under Capital Gains Tax rules. It is the taxpayer’s responsibility to prove that their declared intention matches their actions.
- Converting your cryptocurrency earnings to Rands: In this case, individuals will have to pay applicable income tax or capital gains tax, depending on whether you were trading or investing.
- Receiving income from cryptocurrency: This is declared when an individual receives any form of income from their cryptocurrency.
- Exchanging cryptocurrencies: This is treated the same as when an individual sells one share to buy another.
- Mining cryptocurrency: When crypto tokens are mined, the market value of the coin is added to your gross income. Expenses that occur as a result of coin mining can also be tax deductible.
- Making payments with cryptocurrency: If this is done it is treated as ‘selling’ your crypto to purchase goods and services.
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