You need to de­clare Bit­coin for tax pur­poses

Trans­ac­tions or spec­u­la­tion in Bit­coin is sub­ject to the gen­eral prin­ci­ples of South African tax law. re­ports

Pretoria News Weekend - - ENTERTAINMENT -

BIT­COIN is grow­ing in pop­u­lar­ity. The fact that lead­ing re­tailer Pick n Pay gave the cryp­tocur­rency a trial run – a suc­cess­ful one too – is ev­i­dence that it has the po­ten­tial to be adopted for reg­u­lar trade.

Bit­coin is just one of many cryp­tocur­ren­cies that are un­reg­u­lated. They are de­cen­tralised dig­i­tal cur­ren­cies that can be bought, sold and traded.

The South African Re­serve Bank (Sarb) does not con­sider cryp­tocur­ren­cies as le­gal ten­der. But how does the South African Rev­enue Ser­vice (Sars) treat cryp­tocur­ren­cies?

Mar­cus Botha, the direc­tor, cor­po­rate tax con­sult­ing at pub­lic ac­count­ing, tax, con­sult­ing and busi­ness ad­vi­sory firm BDO, says: “Cryp­tocur­ren­cies are not sub­ject to the reg­u­la­tions of the Re­serve Bank, as the po­si­tion pa­per they re­leased on vir­tual cur­ren­cies states that the cryp­tocur­rency does not have le­gal-ten­der sta­tus.

“Un­til fur­ther clar­ity and for­mal reg­u­la­tion, Sars will ap­ply gen­eral tax prin­ci­ples and tax the in­come or cap­i­tal gains that are re­ceived or ac­crued to a tax­payer.”

The tax­man agrees. “Trans­ac­tions or spec­u­la­tion in Bit­coin is sub­ject to the gen­eral prin­ci­ples of South African tax law and taxed ac­cord­ingly,” says Sars.

Botha says that, although Bit­coin is not recog­nised as a le­gal ten­der, own­ing a cryp­tocur­rency may be re­garded as an as­set.

“The Bit­coin re­garded as an as­set and in your pos­ses­sion will have to be val­ued and in­cluded in your tax re­turn at the end of the year of as­sess­ment.”

If you use this as­set to trans­act, the trans­ac­tion may be re­garded as a barter trans­ac­tion or trad­ing stock. In such a case, Botha says VAT on barter trans­ac­tions should be con­sid­ered.

He says that, if you hold this as­set as an in­vest­ment, cap­i­tal gains tax (CGT) may be ap­pli­ca­ble to the even­tual dis­posal of this as­set.

“For both in­come tax and CGT pur­poses, the rand value amounts will need to be in­cluded in the gross in­come of the tax­payer. There­fore, ex­change dif­fer­ences may have to be con­sid­ered on con­ver­sion of the as­set’s value us­ing the rel­e­vant ex­change rates.”

There are var­i­ous ways of earn­ing Bit­coins, such as ac­cept­ing them as a means of pay­ment for com­plet­ing tasks on web­sites, in­ter­est pay­ments, get­ting tipped and min­ing Bit­coins.

Bit­coin min­ing is the process of adding trans­ac­tion records to Bit­coin’s pub­lic ledger, known as the blockchain. The blockchain serves to con­firm trans­ac­tions to the rest of the net­work as hav­ing taken place.

Botha says that min­ing Bit­coin is a mis­lead­ing term.

“Tech­ni­cally, this is not a min­ing ac­tiv­ity, but a ser­vice pro­vided through blockchain and earn­ing a fee or com­mis­sion for that ser­vice. The in­come earned as a fee or com­mis­sion may be in­cluded in gross in­come and there­fore de­clared.”

Ac­cord­ing to Sars, such in­come is sub­ject to nor­mal tax. You may be li­able to reg­is­ter as a pro­vi­sional tax­payer if the to­tal tax­able in­come re­ceived ex­ceeds the tax thresh­old for the year.

Sars says a tax­payer who re­ceives cryp­tocur­rency as pay­ment for ser­vices should in­clude, in com­put­ing gross in­come, the fair mar­ket value of the cryp­tocur­rency and such in­come is sub­ject to nor­mal tax.

Sars says that cryp­tocur­rency re­ceived by an in­de­pen­dent con­trac­tor for per­form­ing ser­vices con­sti­tutes self-em­ploy­ment in­come, and such in­come is sub­ject to nor­mal tax. You may be li­able to reg­is­ter as a pro­vi­sional tax­payer if the to­tal tax­able in­come re­ceived ex­ceeds the tax thresh­old for the year.

Jonathan Pur­nell, the as­so­ciate des­ig­nate in the tax team at Nor­ton Rose Ful­bright South Africa, says in his blog that, where Bit­coin is bought on an ex­change, the value of the Bit­coin – at the rand price at the time of ac­qui­si­tion – must be recorded.

He says when that Bit­coin is used to pur­chase goods or sold for rands, tax – at your mar­ginal rate – will be ap­plied to the amount by which the dis­posal value ex­ceeds the ac­qui­si­tion value. In re­la­tion to the pur­chase of goods, the dis­posal value would be the mar­ket value of the goods ac­quired.

“If you re­ceive Bit­coin as pay­ment for pro­vid­ing goods or ser­vices, the full rand value of that Bit­coin at the time of re­ceipt will be sub­ject to tax at your mar­ginal rate as if you had re­ceived an as­set in con­sid­er­a­tion for the goods or ser­vices in ques­tion.”

How­ever, as the global un­der­stand­ing of cryp­tocur­ren­cies is con­stantly de­vel­op­ing, tech­ni­cal knowhow and ex­pe­ri­ence is needed to nav­i­gate this new le­gal land­scape. In this fast-paced en­vi­ron­ment, the above con­clu­sions may change as the reg­u­la­tors and leg­is­la­tors catch up with this new tech­nol­ogy, Pur­nell says.

Ti­betan Bit­coin mine man­ager Kun walks be­tween aisles of min­ing machines in a Bit­coin mine in Sichuan prov­ince, China. Sichuan has be­come known as “the cap­i­tal of Bit­coin min­ing” as en­tre­pre­neur­ial Chi­nese set up mines there be­cause of its abun­dant hy­dropower, per­fect for the high elec­tric­ity needs of the large num­ber of com­put­ers re­quired for Bit­coin min­ing. Bit­coin mines are ware­house-like struc­tures equipped with mas­sive num­bers of mi­cro­pro­ces­sors with which min­ers solve com­plex math­e­mat­i­cal prob­lems and are re­warded in the dig­i­tal cur­rency. The in­dus­try ex­ists in a le­gal grey zone in China.

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