South Africa Crypto Tax Guide 2024
South African investors are required to pay 18% capital gains tax on any gains incurred through crypto transactions and regular income tax rates apply to income bearing crypto transactions. But, here’s the caveat, there are no clear guidelines concerning the demarcations between income and CGT transactions leaving crypto investors in a stir. Moreover, the authorities are yet to release specific guidelines on the tax implications of more complex transactions such as Airdrops, Forks, and DeFi.
That’s why we created this comprehensive guide to help investors navigate the crypto tax landscape conveniently and guide them through their tax filings to avoid tax troubles in the future.
Note that this guide is quite extensive and will be updated regularly to accommodate any new rules or guidelines. Therefore, we suggest revisiting this guide regularly to not miss out on these updates.
Latest Updates/Guidelines
How Is Crypto Taxed in South Africa?
The South African Revenue Service (SARS) does not consider crypto to be legal tender and categorises it as "assets of an intangible nature," which significantly impacts the tax treatment. Crypto transactions are taxed in South Africa depending on the nature of the transactions.
If the transaction is capital in nature, it is subject to Capital Gains Tax. Taxpayers receive an annual exclusion of 40,000 ZAR and are only taxed on 40% of the total gain at a maximum effective tax rate of 18%. This means that individuals pay tax on just 40% of their profit, making the tax burden comparatively lighter, particularly for long-term investors. However, this calculation can vary depending on the total taxable income.
On the other hand, if gains from a transaction are considered as revenue income in nature, it is taxed under the existing income tax laws. This can range from 18% to 45%, placing a higher tax burden on individuals with greater income from cryptocurrency activities.
Note that the tax treatment also depends on whether the taxpayer is classified as an individual or a legal entity. For transactions conducted under a legal entity, such as a company, the corporate tax rate applies, which is typically 28%, although it's reduced to 27% starting March 31, 2023. Legal entities are taxed on 80% of cryptocurrency gains exceeding the 40,000 ZAR tax credit.
However, a caveat to all these considerations is that the tax treatment isn't solely based on these factors. It also depends on whether the investment activities are seen as holding assets as capital assets or trading stock.
Can the SARS Track Crypto?
The simple answer would be yes. The SARS can track crypto transactions. Cryptocurrency exchanges and financial institutions are required by the Income Tax Act to share customer details like KYC and investment activity with the authorities. This means that if an individual has participated in crypto transactions, SARS can likely access their transaction details.
Moreover, blockchain transactions are stored on distributed ledgers and are visible to everyone, making it easier for tax authorities to use decentralised Web3 tools to link these transactions with the KYC details and identify any discrepancies in tax reports.
Therefore, we suggest reporting all your crypto transactions on your tax report and paying your taxes judiciously to avoid penalties for tax evasion.
Capital Gains Tax
It's worth noting that while CGT is a key component of crypto taxation, the specific rules and guidance can be somewhat complex. Investors in South Africa pay capital gains tax while traders pay income tax.
One of the essential aspects about CGT in South Africa is the tax rate. Capital gains on cryptocurrencies are subject to a maximum effective tax rate of 18%. However, this rate is only applied to gains that exceed the annual exclusion threshold. South African taxpayers receive an annual exclusion of 40,000 ZAR, which means that the first R40,000 of capital gains from cryptocurrency transactions are exempt from taxation. Gains exceeding this threshold are subject to the 18% tax rate, but only after applying the exclusion.
The calculation of the effective tax rate is a bit unique and can be favourable for taxpayers. Once capital gains exceed the 40,000 ZAR exclusion, you are taxed on only 40% of those gains. For instance, if you have a total capital gain of 100,000 ZAR, you would only pay tax on 40% of the amount exceeding the 40,000 ZAR exclusion limit i.e the tax base would be equal to 40% of (100,000 ZAR- 40,000 ZAR), which comes out to be 24,000 ZAR.
Investors vs Traders
As discussed earlier, the tax implications vary based on whether you’re categorised as a trader or an investor. In South Africa, authorities categorise individuals as traders or investors in cryptocurrency transactions based on several key factors:
- Motive for Buying/Holding Cryptocurrencies
If you intend to hold cryptocurrency as a long-term investment, it's seen as an investment. Buying for short-term profit is typically regarded as trading.
- Holding Duration
The longer you hold crypto, the more likely gains from disposals will be viewed as capital gains.
- Transaction Frequency
Frequent transactions suggest trading, especially with a high volume in a tax year.
- Transaction Scale:
Large-scale, frequent transactions lean toward trader status.
- Effort and Work
Active management and trading efforts indicate trading; passive holdings are seen as investments.
- Profit Intent
If you actively seek profits, they're considered revenue rather than capital gains.
- Changing Intentions
Be aware that intentions can change over time, affecting your tax treatment.
Capital Gains Tax Rate
In South Africa, the capital gains tax (CGT) rate is 18%. This rate applies to gains exceeding the annual exclusion of 40,000 ZAR. The actual tax you pay can vary depending on your total taxable income.
How to Calculate Crypto Gains and Losses
Calculating your crypto gains and losses is a straightforward process. You can use this formula to calculate your crypto gains:
For those of you who aren’t aware of the term cost basis, it is simply the price you pay to acquire an asset inclusive of any additional fees like transaction or gas fees.
Consider the following ledger of transactions:
12/01/22 - Junior bought 3 BTC for 4,00,000 ZAR each
19/08/22 - Junior sold 3 BTC for 4,80,000 ZAR each
Now,
Disposal Amount = 4,80,000 ZAR (For 1 BTC)
Cost Basis = 4,00,000 ZAR (For 1 BTC)
Capital Gains/Loss = Disposal Amount - Cost Basis = 4,80,000 - 4,00,000 = 80,000 ZAR (For 1 BTC)
Total Gains = 3 X 80,000 ZAR = 2,40,000 ZAR
However, the authorities offer a 40,000 ZAR tax exemption
Effective gain after exemption = 2,40,000 ZAR - 40,000 ZAR = 2,00,000 ZAR
Now, the taxable amount would come out to be 40% of 2,00,000 ZAR i.e 80,000 ZAR
Crypto Losses
From a tax perspective, crypto losses are tax-deductible in South Africa.
When you incur losses from your crypto transactions, you can leverage these losses to offset the gains you’ve accumulated during the same tax year.
Moreover, should you find yourself in a situation where you've accumulated capital losses in a given financial year but lack corresponding capital gains, there's an option to carry forward these losses to future financial years. This can prove advantageous as you can use these losses to offset gains in subsequent tax years when they may be more applicable.
Note that there is a particular rule known as the "bed and breakfasting" rule that is used to avoid taxes by producing fictitious losses. Under this rule, people sell cryptocurrency assets to deliberately create artificial capital losses and then repurchase them within a short timeframe. The SARS has clear guidelines against losses generated through bed and breakfast rule, where any losses incurred from asset repurchased within 45 days of the disposal are discarded.
Lost or Stolen Crypto
The SARS is yet to release specific guidance regarding the tax treatment of assets lost in scams or stolen by hackers. However, losses may be claimed in some instances. To claim a capital loss for lost or stolen cryptocurrency, you must demonstrate that you've permanently lost access to your digital assets with little chance of recovery or compensation. Strong evidence and documentation are crucial, including any relevant reports or communication with authorities.
Normal exclusions and limitations on capital losses may apply, and South Africa's "ring fencing of losses under section 20A" concept could further affect the tax treatment.
From a tax standpoint, there's some flexibility for individuals to offset losses from one business against profits from another, helping to reduce their overall tax burden. However, it's crucial to understand the limitations, especially natural persons. South Africa's Income Tax Act, No 58 of 1962 (the Act), Section 20A, outlines specific scenarios where losses from particular trades may be 'ring-fenced.' This means these losses cannot be used to offset income from other businesses conducted by the same individuals.
Crypto Tax Breaks South Africa
Although there’s no way to avoid paying taxes entirely in South Africa. There are strategies you can employ to lower your tax bill.
1. Reduce the frequency of transactions
Some taxpayers choose to alter their trading strategy to ensure that their profits are classified as capital gains rather than income. This might involve reducing the number of transactions and holding cryptocurrency for a longer duration.
2. Use your annual exemptions
Individual investors can enjoy tax-free treatment on their first 40,000 ZAR of capital gains each year.
3. Use Tax Loss Harvesting
While losing money is not ideal, selling cryptocurrency at a loss can have a silver lining in the form of tax savings. Capital losses can offset capital gains during the same tax year, and if there's a net loss, it can be carried forward to offset future gains.
Note that there’s a specific rule called the bed and breakfast rule that prevents investors/traders from generating superficial losses. If you have disposed of an asset at a loss and repurchased the same asset 45 days before or after the disposal, then that capital loss will be disregarded by the tax authorities.
4. Donate Crypto
Donating cryptocurrency to registered charities as a Public Benefit Organization (PBO) is considered tax-deductible. The first 100,000 ZAR of property donated is exempt from Donations Tax.
5. Deduct Any Expenses
Expenses related to acquiring or disposing of cryptocurrency can be added to your base cost, reducing your tax liability during a disposal event.
6. Use tax rebates to lower your tax bill
South African taxpayers can access various Income Tax rebates, depending on their age, potentially reducing their tax bills. Primary rebates start from 17,235 ZAR for all natural persons.
7. Act more like a Investor
To reduce tax liability, individuals can strategically plan their investment activities to position themselves as investors in the eyes of the SARS instead of traders. Investors benefit from an annual exclusion for capital gains, with only 40% of gains subject to tax, while traders do not receive these benefits.
Crypto Cost Basis Method
The examples we have used so far are primitive and are not reflective of the real world transactions, as they are much more complex. For instance, if a trader buys the same asset for different prices at two separate instances, the task of identifying the cost basis upon disposal of such assets becomes tricky.
That’s why using specialised accounting methods as specified by local tax authorities is advisable. Although there’s no official guidance by the SARS, it is likely that you have to pick one of the following accounting methods for your cost basis calculations.
1. FIFO
The FIFO or First-In-First-Out Accounting Method states that the first asset you buy is the first one you sell, which essentially means that the acquisition price of the first asset is to be used as the cost basis upon disposal.
2. Specific Identification Method
The specific identification method allows traders to pick the cost basis of their choice given that they can prove which token is being disposed of using the transaction records. Specific transaction IDs are used to identify the transactions and cost basis upon disposal.
Consider the following example:
17/02/22 - Lubanzi bought 1 ETH for 22,000 ZAR
19/04/22 - Lubanzi bought 1 ETH for 20,000 ZAR
22/08/22 - Lubanzi bought 1 ETH for 23,000 ZAR
19/12/22 - Lubanzi sold 1 ETH for 27,000 ZAR
Let’s say we decide to use FIFO for calculating the cost basis for this disposal:
According to FIFO, the acquisition price of the first asset is to be used as the cost basis.
Cost Basis = 22,000 ZAR
Disposal Amount = 27,000 ZAR
Capital Gains = Disposal Amount - Cost Basis = 27,000 ZAR - 22,000 ZAR = 5,000 ZAR
Crypto Income Tax
When you engage in crypto trading, where you frequently buy and sell digital assets, any profits from these transactions are treated as income. This income is subject to Income Tax, and the tax rate is determined based on your total annual income. The applicable marginal tax rate is applied to your entire profit from cryptocurrency trading. Essentially, if you're classified as a trader, you'll be subject to Income Tax on the entirety of your trading profits.
Moreover, some cryptocurrency activities are subject to Income Tax regardless of whether you're categorised as a trader or investor. These activities include cryptocurrency mining, earning staking rewards, receiving income from referral programs related to crypto, and even the sale of Non-Fungible Tokens (NFTs) as a creator. If you partake in any of these activities to generate income, the profits derived are subject to Income Tax.
The tax rate applied in these cases depends on your total annual income, with higher incomes incurring higher tax rates. Note that the guidelines around complex transactions like interest income from DeFi transactions are still unclear. Therefore, it is advisable to seek guidance from an experienced tax professional to gain more clarity on the subject.
Crypto Income Tax Rate
Listed below are the income tax rates for the 2023 and the 2024 tax year
For the 2024 tax year (March 1 2023 to February 29 2024)
For the 2023 tax year (March 1 2022 to February 28 2023)
Tax-Free Crypto Transactions
Although the majority of crypto transactions attract tax liabilities in South Africa, there are some transactions that attract no taxes whatsoever!
The following transactions are tax-free in South Africa:
- Buying Crypto for fiat
- HODLing Crypto
- Transferring crypto between personal wallets – however there should not be any increase in the net value of the assets.
Taxed Crypto Transactions
Listed below are all taxed crypto transactions in South Africa:
- Selling crypto for fiat
- Swapping one crypto for another
- Sending crypto
- Gifting crypto
- Receiving compensation in crypto
- Receiving mining or staking rewards
- Receiving airdrops
- Earning interest income through DeFi protocols
Tax on Mining Crypto
Crypto mining in South Africa is taxed based on how it's classified. If you mine crypto as a business, you're subject to Income Tax based on the fair market value of the crypto on receipt.
Moreover, if you choose to dispose of your mining rewards in the future, you might face additional tax obligations based on SARS' categorization of your activities.
If SARS views your mining as a business, you'll owe Income Tax when you dispose of your mining rewards. This tax depends on the relevant Income Tax rates and your total annual income.
If, however, your activities are considered investments, Capital Gains Tax might apply when you dispose of the mining rewards. Your tax liability here depends on the change in value of the cryptocurrencies from when you received them to when you decide to sell, swap, spend, or gift them.
In a nutshell, South African cryptocurrency miners must pay Income Tax when receiving mining rewards. Tax responsibilities can extend when disposing of these assets, contingent on how SARS perceives your activities, whether as trades or investments.
Tax On Staking Crypto
According to a circular promulgated by the South African Reserve Bank, staking activities are considered to be different from mining and therefore the tax implications for staking are different. However, the circular does not mention the specifics of how income from staking will be taxed.
Depending on the tax treatment of other crypto transactions and the existing regulations, it is likely that staking income is viewed as ordinary income for tax purposes. This implies that when you receive staking rewards, they are likely to be taxed based on the fair market value of the cryptocurrency you earned at the time of receipt.
Moreover, when you decide to dispose of these tokens by selling, trading, spending, or gifting them, additional taxes may apply. The specific tax obligations would be determined based on the capital appreciation or depreciation within the holding period.
How Are Airdrops and Forks Taxed
Although there is no specific guidance on the tax implications of receiving tokens from airdrops or hard forks, it is safe to assume that these transactions are taxable.
We are not certain whether tokens received through hard forks attract income tax or not. However, those received through airdrops will be typically considered income and taxed based on the fair market value of the received tokens at the time of receipt. Subsequent taxes may apply if these tokens are disposed of in the future, depending on any value changes.
Crypto Gifts and Donation Taxes
Generally, when you give or donate crypto in South Africa, it's considered a taxable event. The tax base is calculated based on the change in the cryptocurrency's value since receipt. This means that if the cryptocurrency has appreciated in value from the time of acquisition, you may be liable to pay tax on the capital gain.
However, there are important exemptions to consider. If you give crypto to your spouse, this is usually tax-exempt. Moreover, donations to certain Public Benefit Organizations may also be eligible for tax exemption. To qualify for this exemption, the charity must be officially registered as a Public Benefit Organization (PBO) with the SARS. In such cases, the charity should provide a receipt in accordance with section 18A of the Income Tax Act.
Furthermore, there is a Donations Tax exemption in South Africa. The first R100,000 of property donated by a natural person in a given year is exempt from Donations Tax. This exemption extends to cryptocurrency donations.
Crypto Margin Trades, Futures, and CFDs
There is no specific guidance on how crypto margin trades, futures, and CFDs are taxed. So we naturally turned to mainstream markets to understand the tax implications of such transactions, but to our surprise there were no guidelines for more mainstream markets as well.
Therefore, it would be best to seek help from an experienced tax consultant to gain more clarity on the subject.
ICO Taxes
ICOs are special events that allow investors to own native tokens from unreleased projects in exchange for mainstream tokens like Bitcoin and Ethereum. They are similar to IPOs in the regular securities market.
The SARS has yet to release specific guidelines on the taxation of ICOs. However, since these tokens cannot be viewed as revenue due to their non-recurring nature, ICOs would likely attract capital gains tax in South Africa upon disposal.
We do suggest seeing help from an experienced tax professional to gain more clarity on the topic.
NFT Taxes
Although there is no specific guidance on how NFT transactions are viewed from a tax perspective, we have analysed the existing guidelines and extrapolated the tax implications. NFTs will most likely be subject to taxation based on the nature of the transactions and the taxpayer's classification as a trader or investor.
If you earn revenue from NFTs you've created, your profits are likely to be subject to income tax, especially for primary and secondary sales. If the activity involves swapping of NFTs, a portion of the profits might be subject to capital gains tax.
DAO Taxes
DAOs are member-owned communities with a shared vision. All the decisions in a DAO are made by the members in the absence of central leadership. They are new-age institutions that aim to democratize decision-making and allow people to have a say in decisions that directly affect them. DAOs are often called the soul of Web3 and allow members to earn rewards in multiple ways. DAO contributors are rewarded for their contributions to the organization, similar to how centralized organizations pay salaries to their employees. They also pay out bounties for one-time projects and redistribute any profits generated through operations.
Unfortunately, there are no guidelines on whether the compensation received from DAOs are taxable. We suggest seeking help from an experienced tax professional to gain more clarity on the subject.
DeFi Taxes
The SARS is yet to release guidelines regarding DeFi taxation. However, frequent and recurring interest from DeFi protocols may be viewed as income and subjected to income tax rates based on the existing regulations.
Moreover, based on the new tax filing guidelines issued by the SARS, couples in South Africa who are married in a community of property and have interest investments, may experience a relief. The interest investment certificate will be replicated on both spouses' tax returns and each spouse will be taxed on 50% of the interest income, allowing for a fair and equitable tax distribution within the community of property framework.
That being said, there is no official guidance on the tax treatment of popular DeFi transactions like staking, liquidity mining, and yield farming and we do suggest seeking help from experienced tax professionals to better understand how such transactions are taxed.
When to Report Crypto Taxes in South Africa
In South Africa, the tax deadline varies depending on the type of taxpayer:
For Individual Taxpayers (Non-Provisional)
The tax deadline is typically 23 October of the year following the tax year. For example, for the 2022/2023 tax year, the deadline would be 23 October 2023.
For Provisional Taxpayers
The tax deadline is extended to 24 January of the year following the tax year. So, for the 2022/2023 tax year, the deadline would be 24 January 2024.
How to File Crypto Taxes in South Africa
You can file your crypto taxes through the SARS eFiling platform, which is the online portal for submitting returns and declarations, making payments, and conducting various tax-related interactions.
What Crypto Records will the SARS Want?
Although there is no official list of documents for crypto record keeping as specified by the authorities, the SARS may ask for proof of sale and purchase prices for auditing your tax reports. Therefore, maintaining a record of the following documents is advisable in South Africa:
- Date and time of transactions
- Details about the type of tokens or cryptocurrencies bought or sold
- Details of transaction participants and motive of the transaction
- Fair market value of the assets upon acquisition or receipt
How to File Crypto Taxes Using Kryptos?
Now that you’re aware of how your crypto transactions are taxed and what forms you need to fill out to complete your tax report, here’s a step-wise breakdown of how Kryptos can make this task easier for you:
- Visit Kryptos and sign up using your email or Google/Apple Account
- Choose your country, currency, time zone, and accounting method
- Import all your transactions from wallets and crypto exchanges
- Choose your preferred report, click on the generate report option on the left side of your screen and let Kryptos do all the accounting.
Once your Tax report is ready, you can download it in PDF format.
How to Avoid Crypto Taxes in South Africa
We have discussed multiple strategies to avoid paying excess taxes in the section titled “Crypto Tax Breaks South Africa” above. You can revisit the strategies there. Here’s a brief overview of the strategies:
1. Reduce the frequency of transactions
2. Use your annual exemptions
3. Use Tax Loss Harvesting
4. Donate Crypto
5. Deduct Any Expenses
6. Use tax rebates to lower your tax bill
7. Act more like a Investor
Frequently Asked Questions (FAQs)
1. Is crypto legal in South Africa?
This question would be better phrased as “Are crypto investments legal in South Africa?” and the answer would be yes. The fact that South African authorities have established specific regulations and taxation guidelines for cryptocurrencies strongly indicates their legal status. South Africa has taken steps to address the taxation of cryptocurrencies, which reinforces their legality within the country. These regulations provide a framework for individuals and businesses to engage in crypto-related activities while ensuring compliance with tax obligations. Therefore, crypto investments and transactions are legally recognized in South Africa.
2. How is Crypto taxed in South Africa?
Crypto is taxed in South Africa based on whether it's classified as income or capital gains. Income tax applies to activities such as mining and trading. Capital gains tax is applied when cryptocurrencies are held as assets. Specific rates and treatment vary depending on individual circumstances.
3. Is there a capital gains tax in South Africa?
Yes, there is a capital gains tax in South Africa and investments categorised as infrequent and non-recurring are taxed under the capital gains tax rates.
4. How can Kryptos simplify crypto taxes for you?
We’ve already discussed how to file your crypto taxes in the above sections of the guide offering a stepwise breakdown of the entire process. However, we agree that it is unreasonably complicated even for someone with a fair amount of prior knowledge. However, there’s an easy way to file your crypto taxes using a crypto tax software called Kryptos.
All you need to do is log in on the platform, add all your trading accounts, wallets, and Defi accounts, and sip coffee while Kryptos does all the heavy lifting for you. The platform auto-fetches all your transactions from the tax year. It generates a legally compliant tax report within minutes while also suggesting ways to lower your tax bill. It works like magic, all you need to do is try it once.
