With individual tax returns due to SARS on 23 October, South African residents who have invested in crypto assets are gathering their information before the filing window closes.
South Africa’s largest crypto investment app, Luno partnered with a crypto tax expert to provide a crypto tax calculator at no charge for users. Using Recap’s calculator, you can evaluate if there’s a need to file a tax report by connecting your crypto accounts and calculating your capital gains.
Christo de Wit, Luno’s country manager for South Africa, unpacks the basics of crypto tax. “SARS released guidance on crypto taxes in 2018 and has issued clarifications since then, so it’s important to get to grips with what can be complex,” he says.
What taxes do you need to pay?
This largely depends on the nature of your interactions with crypto assets. Broadly, there are two main tax types applicable to crypto: income tax and capital gains tax. To determine tax treatment, the South African Revenue Service (SARS) considers the type of activity, as well as your intentions and length of investment. How you complete your tax return will depend on whether your activity deems you a trader or an investor.
Traders are viewed as short-term investors, looking to actively trade in the market for a profit. Crypto asset traders will generally frequently trade tokens and engage in a lot of swing trading, or dispose of crypto when opportunities arise to make a profit. Crypto asset investors are generally seen as longer-term holders of tokens with the expectation of long-term growth. In certain cases, this may include crypto assets that are held for the purpose of making other profits (for example, crypto assets held to earn staking rewards).
How much tax will you pay?
The amount of tax payable on your crypto depends on if you are taxed as a trader or investor. Traders are taxed on their entire crypto profits (deducting any allowable expenses), at their normal income tax rate. Investors will be taxed on 40% of capital gains less the annual allowance of R40,000, at their normal income tax rate.
While taxes apply on capital gains, capital losses can also be claimed. Losses are ring-fenced and must be offset against future crypto capital gains. Submitting any losses could enable you to reduce your liability if you make capital gains in future.
Myths about crypto tax
A common misconception is that crypto asset gains are not taxable until you withdraw your funds. In fact, SARS considers any gains on crypto assets to be taxable, whether it’s capital or revenue in nature, even if the funds are not readily in your account and remain on an exchange or platform. Even trading one crypto asset for another is taxable, which means you must declare all your trades where it applies.
Another myth is that crypto asset transactions are anonymous and impossible to track. In fact, the opposite is true. The blockchain is a public ledger where every transaction, wallet, and contract address is in plain sight for anyone to see. While privacy can be maintained to some extent, tax authorities like SARS can trace digital footprints if required.
What you’ll need before filing your taxes
The first requirement is all your historical transactions for all wallets and exchanges. Luno provides a downloadable statement for each tax period which you can use to manually calculate your taxes. You’ll need detailed records of all of your trades and accurate and consistent pricing for each asset to calculate your taxable gains or income.
“We know that understanding your tax position isn’t always straightforward. The crypto tax calculator is free and if you’d like to download a tax report or delve deeper into your tax insights, you can upgrade to a paid plan. Recap is offering a 50% discount for Luno customers in South African Recap Basic and Pro paid plans for one year.
