By: Jashwin Baijoo and Micaela Paschini
The South African Revenue Services (Sars) has unearthed a new source of tax revenue collection – cryptocurrency trading and investing!
With their purview unlimited, Sars has confirmed their ability to receive information directly from local crypto asset exchanges, to ensure non-compliance is both hard and costly for taxpayers.
It does not stop there for taxpayers engaged in the crypto business, as international cooperation and automatic exchanges of information bolster the range on Sars’ non-compliance radar.
Whether your crypto assets are held and disposed of locally, or offshore, Sars’ purview on a taxpayer’s legal obligation to account for any income or assets is a global phenomenon.
Sars’ own “Seals” team – Covert in the crypto-verse
Hunting an intangible beast like crypto assets requires a highly specialised team, with a very particular set of skills, making them a nightmare for non-compliant crypto traders and investors:
Empowered to open historic tax periods, and conduct in-depth audits, Sars’ Specialised Crypto Unit is making great inroads into uncovering non-compliance at all levels. This ranges from standard verification, and in instances where taxpayers have in fact made a loss on their crypto activities, to extreme cases where Sars recategorises proceeds from crypto disposals, from capital gains to income.
What is not common knowledge, is that a recategorisation can have a staggering impact on one’s tax bill as the shift taking place from an effective capital gains tax rate of 18% for individuals to being subject to their marginal rate of taxation, being 45% at the top end of the table:
| Proceeds to be treated as Taxable Income | Capital Gain disclosed per Sars tax return | Difference to be taxed |
This recategorisation can result in inflated tax liabilities for crypto holders, potentially wiping out a significant portion of their gains.
The real nightmare, however, lies in the burden of proof. Taxpayers must convince Sars that their crypto holdings are capital in nature—a near-impossible task without meticulous records, legal arguments, and possibly a costly dispute with Sars. Without clear-cut guidelines on what constitutes, many may find themselves at the mercy of Sars’ interpretation, with little room to push back.
Don’t be criminalised for non-compliance
Sars is issuing Notices of Audit and Requests for Relevant Material, across the Crypto-verse!
Those who hold, or have ever held, crypto, should certainly not assume that historical non-declaration means that Sars will not look to tax these profits in the future.
Not only will a review of these historical transgressions be conducted, but should the crypto trader under the radar not comply, severe penalties, or even jail time is immediately on the cards, per section 234 of the Tax Administration Act, No. 28 of 2011 (TAA):
| Further, please note failure to provide requested information to Sars may constiture criminal offence in terms of section 324 of the Tax Administration Act and may attract severe penalties. |
Excerpt from pg.2 of the Sars Request for Information, pertaining to crypto asset transactions
Practically, this means that even though taxpayers are requested to make full disclosures to Sars on local & foreign crypto transactions, this is more for verification, than data-gathering purposes.
Come clean before you lose it all!
Now is not the time to hide your undeclared crypto profits or gains!
With Sars ramping up enforcement and crypto exchanges increasingly under scrutiny, taxpayers trading or investing in crypto assets are encouraged to seek professional tax advice.
The revenue collector has extended an opening for non-compliant crypto traders to engage in the Voluntary Disclosure Programme (VDP), and which engagement is best served with an astute tax attorney and crypto accountant, who is well-versed in navigating this evolving compliance landscape.
The TAA, as enforced by Sars, provides the framework for the VDP, allowing taxpayers to disclose previously undisclosed tax liabilities, thereby avoiding harsher legal consequences. It is a crucial tool for those who find themselves inadvertently or intentionally in violation of tax laws.
Failure to take advantage of this process can lead to criminal charges, financial penalties, and reputational damage, in both the metaverse and the tangible universe.
* Baijoo is an associate director and head of strategic engagement & Compliance, and Paschini is a team lead: tax legal at Tax Consulting SA.
PERSONAL FINANCE