20 Sep Tax on Crypto Currency NOT set in stone
Tax on Crypto Currency not set in stone
On 3 December 2014, the South African Reserve Bank issued a Position Paper on Crypto Currencies stating that Bitcoin “is a digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account and/or a store of value, but does not have legal tender status”. This implies that Crypto Currency is not currently regulated by SARB.
This also means that it is unclear as to how SARS would look at Crypto Currency. Is it actual ‘currency’?
It is believed that Crypto Currency will be regarded as an asset under the Tax Act until it does become legal tender, however it is still unclear.
The circumstances of the specific taxpayer in question would be important in determining, the capital or revenue nature of trades involving Crypto Currency, and therefore, whether gains from such trade would be subject to income tax or capital gains tax (and, conversely, whether losses will be deductible or not).
Where Crypto Currency is used as consideration for the supply of goods or services, and it is determined that Crypto Currency may be viewed as an asset rather than currency for VAT, the trade would likely be treated akin to a barter transaction (i.e., the VAT consequences of two potentially taxable transactions would need to be determined).
Where Crypto Currency is traded, i.e., bought and sold for cash, the VAT consequences for both parties would depend on a detailed analysis of the exact facts of each case. This would be of particular relevance to taxpayers that may exceed the VAT registration threshold through their Crypto Currency trades.
Given the uncertainty regarding the tax implications of Crypto Currency it would be advisable to contact your tax practitioner when evaluating how to deal with the tax aspects of Crypto Currency.