CRYPTO TAX CAN BE A MINEFIELD
BY NOW, most people know what Bitcoin, or cryptocurrency, is. Some have even bought and sold a few and some have found out how to turn cryptocurrencies into a business. Then there are the “miners”.
Following a process that involves no actual hard labour or rock breaking, crypto miners can generate cryptocurrencies by performing complex calculations with large amounts of computing power and specialised equipment.
For many miners, once the cryptocurrency is “minted”, the question of “sale or hold” arises. Do they sell what they have minted, or simply retain it to generate a longterm value?
These decisions have a myriad consequences, some unconsidered.
One of the more serious and often forgotten consequences of mining (and distributing) cryptocurrencies is the tax aspect and arising liability.
More important, however, is that the advice being given to miners, traders and holders of cryptos is inconsistent, inaccurate and potentially damaging.
Most tax professionals giving advice appear to have taken the stance that all crypto sales result in a generation of revenue and therefore income tax is payable.
The test for whether proceeds received from cryptocurrency sales is taxed comes down to the muchdebated argument of capital versus revenue. Without adding a voice to what is possibly the most saturated contestation in tax law, one quite simply cannot apply a blanket approach to all crypto disposals.
The SA Revenue Service’s own website provides a differentiation between capital and revenue: “While 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”. Alternatively, such gains may be regarded as capital.
There are those miners that sell upon minting cryptos and those that hold them for lengthy periods.
However, the advice being given to these miners is a blanket approach. Tax practitioners seem to be opting for the easiest route of advising clients that all proceeds being generated from crypto disposals are revenue in nature, effectively implying that every crypto transaction is part of a profitmaking scheme. Only Caesar would benefit from such an approach.
As a tax professional, it is not reasonable to simply advise that all crypto-traders, miners and sellers should be subject to the same taxation standards. There are too many factors to consider with everyone to make a blanket judgment call.
Consider the implications of advising a capital asset holder of the need to pay income tax on a disposal. The monetary difference alone is enough to raise the hair on the back of your neck.
Not to mention the professional negligence…
For those involved in the crypto sphere, it is necessary to make sure that the advice you are being given is both sound and informed. Consult two tax professionals, or better yet, consult 10. Alternatively, save yourself all that run-around and ask the right tax professional.