The tax implications of cryptocurrency
What is cryptocurrency?
There has been a lot of hype over cryptocurrency such as Bitcoin (and others) over the past couple of years but in particular the past six weeks or so. But what are the tax implications of cryptocurrency?
As an accounting firm, we do get asked about the accounting treatment of this. There are few countries that have regulations for these new currencies. South Africa does not have an official law or regulation. But this does not mean that SA is ignoring it at all!
Many people are saying that any dealing with cryptocurrency is tax-free and SARS cannot touch it because of its anonymity. This is false!
In fact, I cringe when I see adverts about the people in SA that have “made millions” through cryptocurrency. I cringe because I know they have not declared their income in their personal tax returns or their company’s tax return. I am not saying that all people do not declare it but would hazard an educated guess that most don’t.
Tax implications of cryptocurrency
There are two ways you can treat cryptocurrency.
- As a long-term investment or asset
- This is when you have it for a long time and only sell it once or twice a year.
- The treatment is much like investing in shares or unit trusts.
- the value will fluctuate and the difference will reflect on your personal tax return.
- This MAY result in capital gains tax.
- In a trading fashion.
- This is the day to day buying and selling of it.
- This is when you have a look at the price today and buy some at a low price and sell it next week at a higher price.
- The treatment will be simple then. All the profits (or losses) will be your salary and taxed accordingly.
Either way, it will affect your tax and they have to be declared in your return.
- This is an opinion post by Bruce Laister of BC Accounting Services (Pty) Ltd and may contain information that will be out of date after publishing. Please consult BC Accounting for more up to date information.