With the 2019 Tax Season well underway, we take a look at the tax implications of trading Bitcoin and other cryptocurrencies. Note that the following applies to all cryptocurrencies and not just Bitcoin.
The short answer
Yes, your Bitcoin is taxable in South Africa. Read on to find out how you could save some money from SARS.
Changes to the Taxation Laws Amendment Act, signed into law by Cyril Ramaphosa in January, affect the way in which your Bitcoin is treated for tax purposes.
One of the changes means that all cryptocurrencies are treated as “financial instruments”; which puts them in the same category as things like futures contracts, promissory notes and derivatives based on underlying commodities.
Previously, SARS’ guidelines on Bitcoin were that cryptocurrency transactions were to be treated like a normal share trade. This meant that if you were trading for revenue purposes, gains and losses would be taxed as a revenue transaction – similar to a salary. If you were holding Bitcoin for investment purposes, that would be treated as a normal capital gain when sold.
As of January, the trading of Bitcoin can now be defined as a “hobby or lifestyle activity”.
Basically, this has two main implications. One, if you trade Bitcoin as a hobby rather than a serious trading activity, any losses made trading cryptocurrencies may be offset against profits made trading cryptocurrencies. Two, this doesn’t allow you to reduce the amount of tax you have to pay on any other income.
How does SARS know what kind of investor you are?
Well, to a large extent, that depends on how much information you provide them with. if you’re trading Bitcoin daily on numerous exchanges, you’re almost certainly a “trader” and not a “hobbyist”.
Although Bitcoin is decentralised and anonymous to a large extent, if you’re trading on an exchange that has KYC requirements, it is fairly easy for that exchange to track your transactions.
Remember, SARS eFiling for individuals closes on 4 December. With TaxTim, completing your tax return is as easy as answering a few questions. And, as a 22seven customer, you get a 25% discount off the already affordable price.