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SARS Sets Out Expectations On Virtual Currency Tax Compliance

by Mary Swire,, Hong Kong

06 April 2018

The South African Revenue Service (SARS) on April 6, 2018, warned taxpayers that they are expected to declare cryptocurrency gains or losses in calculating their taxable income.

The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued, the agency said, noting that failure to do so could result in interest and penalties.

Taxpayers who are uncertain about specific transactions involving cryptocurrencies may seek guidance from SARS through channels such as Binding Private Rulings (depending on the nature of the transaction).

SARS noted that cryptocurrencies are neither official South African tender nor widely used and accepted in South Africa as a medium of payment or exchange. While the word "currency" is not defined in the Income Tax Act, the agency does not consider cryptocurrencies to be a form of currency for income tax purposes or for capital gains tax. Instead, cryptocurrencies are regarded by SARS as "assets of an intangible nature."

The agency said virtual currencies will be taxed under existing guidance and under the normal rules. As such, income received or accrued from cryptocurrency transactions can be taxed on revenue account under "gross income."

Alternatively gains may be regarded as capital in nature. Determination of whether an accrual or receipt is revenue or capital in nature is tested under existing jurisprudence, it said.

Taxpayers are also entitled to claim expenses associated with cryptocurrency accruals or receipts, provided such expenditure is incurred in the production of the taxpayer's income and for the purposes of a trade.

On VAT, the agency noted that the 2018 Budget indicated that the VAT treatment of cryptocurrencies will be reviewed. "Pending policy clarity in this regard, SARS will not require VAT registration as a vendor for purposes of the supply of cryptocurrencies," it said.

TAGS: court | South Africa | compliance | VAT registration / deregistration | tax | value added tax (VAT) | interest | law | currency | penalties | VAT compliance matters | Africa | Tax

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