Bitcoin investments must be declared

SARS: CLARIFIES ITS CRYPTOCURRENCY STANCE

Taxpayers can claim expenses if they’re incurred in producing income and for trade purposes.

Sars said cryptocurrencies like Bitcoin are considered an internet-based digital currency that exist 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.

However, the Income Tax Act doesn’t define “currency” and cryptocurrencies are neither official SA tender nor widely used and accepted as a medium of payment or exchange in the local market.

“As such, cryptocurrencies are not regarded by 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.

““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 in nature,” it added.

Sars said whether accruals or receipts are revenue or capital in nature would be tested under existing jurisprudence and that taxpayers are entitled to claim expenses associated with cryptocurrency accruals or receipts, if they’re incurred in the production of income and for trade purposes.

Base cost adjustments could be made if it falls within the CGT paradigm.

Sars categorises cryptocurrency gains or losses referencing three scenarios, each potentially with distinct tax consequences:

A cryptocurrency can be acquired through “mining”. By verifying these transactions the “miner” is rewarded with ownership of new coins which become part of the networked ledger.

“This gives rise to an immediate accrual or receipt on successful mining of the cryptocurrency. This means that until the newly acquired cryptocurrency is sold or exchanged for cash, it is held as trading stock which can subsequently be realised through either a normal cash transaction or a barter transaction as described below.

“Investors can exchange local currency for a cryptocurrency [or vice versa] by using cryptocurrency exchanges … or through private transactions.

“Goods or services can be exchanged for cryptocurrencies … regarded as a barter transaction. Therefore, the normal barter transaction rules apply.”