Cryptocurrency in South Africa

Cryptocurrency in South Africa

Nozipho Mvulane

What is cryptocurrency

Cryptocurrency is an internet-based digital currency that exists almost wholly in the virtual realm. A growing number of proponents support its use as an alternative currency that can pay for goods and services much like conventional currencies. The most popular form of cryptocurrency us Bitcoin.

Is cryptocurrency regulated in South Africa

The South African Reserve Bank (Reserve Bank) does not oversee, supervise or regulate crypto assets, but does continue to monitor cryptocurrency as it evolves. There are currently no dedicated laws or regulations that specifically govern the use of crypto assets and therefore, no regulatory compliance requirements exist for local trading. However, the Reserve Bank is expected to announce new cryptocurrency regulation proposals in the first quarter of 2020.

Legal protection or recourse to users, traders or intermediaries of crypto assets is dependent on general common law principles. Dealing in crypto assets is performed at the end-users sole and independent risk. However, the South African Revenue Service does have guidelines for crypto assets and cryptocurrencies.

The Income Tax Act and cryptocurrency

In South Africa, the word “currency” is not defined in the Income Tax Act 58 of 1962 (Income Tax 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 the South African Revenue Service (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.

Declaring cryptocurrency-related taxable income to SARS

The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued.  Failure to do so could result in interest and penalties. 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”.

Guidance from SARS

Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer’s income and for purposes of trade.

For more information, contact us at info@rajarammvulane.co.za

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