5 misconceptions about crypto tax

The pace of change in crypto is rapid, with new tokens, projects, and ideas appearing all the time. One area of crypto that’s still playing catch-up though is local regulation, and in particular, the tax treatment of crypto assets.

As governments try to keep up with the changing landscape and introduce new regulations, we take a look at five common misconceptions about crypto taxation.

1. There is no guidance on crypto taxes from SARS

SARS first released guidance on crypto taxes back in 2018 and has issued several statements and clarifications since then. Whilst there is some debate amongst tax professionals about the best way to apply their guidance, there has been a proactive approach from SARS to issue guidance to crypto users.

Even though the guidance exists, not all crypto users are aware and often don’t realise their crypto activity is taxable. It’s always best to check the rules and ensure that you are compliant.

2. Crypto hasn’t always been taxed in South Africa

Crypto has always been taxed in South Africa. In 2018, SARS released a statement clarifying that they would:

“…continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.”

The onus is on the individual taxpayer to ensure they submit any crypto activity and pay their relevant taxes. Remember, lots of crypto activity is taxable, including trading one crypto asset for another, so ensure you are declaring all your trades if you need to.

3. Crypto gains are not taxable until I withdraw my funds

Again, SARS has been explicit in its guidance that it’s not just withdrawals that are considered taxable events.

“… The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.”

SARS considers any gains on crypto to be taxable (capital or revenue in nature), even if the funds are not readily in your account and remain on an exchange or platform.

You may have made gains if you’ve been involved in other types of crypto activity, such as staking, airdrops, and mining which are all taxable and may need to be declared. Ensure you check your transaction history carefully and declare if you need to.

4. I only need to pay capital gains tax on my crypto trading

The tax treatment for crypto assets varies across the globe with different tax authorities taking different views. SARS guidance states that:

“… cryptocurrencies are not regarded by SARS as a currency for income tax purposes or CGT [Capital Gains Tax]. Instead, cryptocurrencies are regarded by SARS as assets of an intangible nature.”

Therefore it’s important for each taxpayer to consider their own personal circumstances before making a decision about the best way to make a declaration. Depending on the facts and circumstances of each case, gains could be capital or revenue in nature. There are a number of factors that can help to determine the best way to file so Luno teamed up with Recap to put together a comprehensive tax guide for South African taxpayers. You can read more here.

5. Crypto transactions cannot be seen by SARS

It’s a common misconception that crypto transactions are anonymous and impossible to track. In fact, the opposite is true. The blockchain is a public ledger storing every transaction, wallet, and contract address in plain sight for anyone to see, making it pseudonymous rather than completely anonymous. This open approach means that, while it’s possible to protect your privacy on the blockchain, it’s possible for tax authorities like South African Revenue Service (SARS) to follow the digital footprints of bad actors.

Although Luno does not share customer information with SARS on a routine or ongoing basis, it’s important to remember that any crypto activity is available for SARS’ perusal.

What next?

Luno has partnered with Recap to provide you with free access to their crypto tax calculator, including downloadable tax reports for your Luno account. Simply connect your accounts to their privacy-focused app and they’ll help to calculate your taxes.

The information contained in this blog is not, and should not be construed as, financial advice, nor as tax advice, nor as a solicitation to trade. All opinions, news, research, analysis, prices or other information displayed herein is provided for informational purposes only.

Please note that Recap is not a registered tax advisor, and that Luno makes no warranties or representations as to the veracity of any information provided by Recap to Luno customers, through the Luno platform. Tax consequences will naturally depend on the individual circumstances of the taxpayer concerned and, as such, are highly individual. You should accordingly consult with your own tax advisor for definitive advice. Luno shall not be liable to you for the accuracy of any information provided herein, nor shall it be liable should you choose to create an account with Recap and/or choose to utilise Recap as a tax solution tool, and you expressly agree to waive any claim against Luno in this regard.