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income tax

Are You In Debt To SARS?

Finding yourself in debt to SARS can be an overwhelming experience, and the situation can become even more challenging if you have neglected to account for your cryptocurrency profits. If you have dabbled in crypto trading, even casually, being unaware of the accompanying tax liabilities could lead you down a dangerous path.

Understanding Crypto Assets

The Taxation Laws Amendment Act, 23 of 2020 established the definition of a “crypto asset”. As per SARS, it is described as a virtual representation of value not issued by a central bank but traded, transferred, and stored by individuals. This value is used for payment or investment and includes cryptographic techniques in its fundamental technology.

Crypto assets are not recognised as currency under South African domestic law. Instead, it is seen as either capital or revenue, depending on the situation. This implies that regular income tax or capital gains tax rules apply to crypto assets, and traders must report any losses, gains, or profits for each tax year.

SARS is Ahead of the Game

Like any other capital gain or revenue, the responsibility of reporting falls on the taxpayer. If they neglect to do so, they may face penalties and interest for under-declaration, which could be viewed as a criminal offence.

Given the unpredictable nature of cryptocurrency markets, it is not uncommon for substantial profits or gains made in a tax year to have drastically fluctuated by the time tax filing season arrives. These fluctuations result in a diminished value for crypto-asset holders, where, in some cases, even liquidation of entire crypto holdings would not be enough to cover the tax debt owed to SARS.

Rectifying Crypto Tax Debt

SARS follows a standard procedure for any outstanding tax debt, including those related to crypto assets. This process involves sending the taxpayer a Letter of Demand outlining the amount of outstanding debt and providing a deadline for repayment. However, SARS often leaves out that tax laws provide several tax debt relief measures designed to offer respite and a practical path forward. Should taxpayers lack the legal grounds to dispute tax debt resulting from their crypto trading yet struggle to fulfil this obligation, they might be eligible to apply for a Compromise of Tax Debt.

The Compromise of Tax Debt aims to assist taxpayers in lowering their income tax obligations through a Compromise Agreement established with SARS. If a taxpayer correctly approaches SARS and their financial situation justifies it, SARS can decrease the tax debt. The taxpayer can then settle the remaining balance according to the agreed-upon terms.
Compromising With SARS

Dealing with SARS can be tricky, and taxpayers must be aware and knowledgeable about potential tax debt. If you are faced with tax debt due to crypto assets, acting swiftly can avoid the accumulation of additional interest and penalties. Our tax consultants offer professional assistance to help you navigate tax debt negotiations and regain SARS compliance. Reach out to our team for more information.