How much tax South Africans can expect to pay on their Bitcoin profits

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Despite its volatility, cryptocurrencies have been the top-performing asset class over the last decade and breached the $1.3 trillion mark making them the world’s fifth-most valuable global asset by value. Many South Africans have made mega returns on their Bitcoin, and while most of us feel assured by blockchain’s anonymity, experts are warning your digital currencies are not beyond the reach of tax authorities.

While it might be a hefty task, SARS says it’s determined to track and trace the profits made by South African crypto traders. The revenue service recently demanded and acquired information from exchanges and has been auditing taxpayers directly in cases where it believes there may have been undeclared gains.

Speaking to Business Insider South Africa, Thomas Lobban, legal manager for cross-border taxation at Tax Consulting South Africa, said South Africans should be aware that their trades may be traced now or in future, and tax avoidance is tax avoidance, regardless of the instrument.

“It is well worth remembering that tax is not only levied upon withdrawal of fiat from an exchange,” said Lobban. “In other words, sales, exchanges and other activity taking place on a cryptocurrency exchange is often taxable and cannot simply be ignored because it has not been withdrawn (and therefore SARS does not know about it).”

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Business Insider South Africa
asked Lobban to calculate the tax liability for three different scenarios, for those who invested early and have not traded heavily since. Below is how much tax South Africans can expect to pay on their Bitcoin profits:

Scenario 1: You made a 50x gain by investing early and just sat on it. TAX: Zero
“If you bought or mined bitcoin in its early days, you could easily have seen a gain of more than 50 times on your holdings at one point. If that is the case and you have done nothing since, leaving your bitcoin stash untouched, your tax bill is zero. The lack of trading or withdrawal means there has been no disposal event in relation to the cryptocurrency held, which would trigger tax.”

Scenario 2: You made a killing on bitcoin and traded only a small % for something like dogecoin. TAX: Zero
What if you turned R10,000 into R500,000 of bitcoin, then sold R10,000 of that bitcoin for dogecoin and made R40,000? Your tax would still be zero because the appreciation of your dogecoin is unrealised, so there is no tax liability against that. Where you would be liable to pay tax is on the R10,000 worth of bitcoin (2% of your total bitcoin holding) that you traded. To calculate this tax: Subtract 2% of your initial investment (R200 of the R10,000 you initially put in), and you achieved a capital gain of R9,800. But Lobban points out that there is a R40,000 annual exclusion to capital gains tax that applies in this case, so you still won’t be taxed.

Scenario 3: You’ve cashed out your R500,000 worth of bitcoin. TAX: R81,000 (16.2%)
“What if you put R10,000 into bitcoin and sold it for R500,000? In short: R81,000, for an effective 16.2% of that cash amount. The calculation works like this: R490,000 of the R500,000 is a capital gain. That is reduced by R40,000, the annual exemption for capital gains, so tax is calculated against R450,000. Of that, 40% (in this case R180,000) is included in taxable income, and assuming the taxpayer is in South Africa’s top tax bracket, and pays 45% tax, the amount due on the bitcoin gain would be R81,000.”

Source: Business Insider South Africa. Find more trending content, right here.

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