Failure to declare payments from any form of cryptocurrency business can attract penalties upto to jail term according to South African Revenue Service SARS.
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All cryptocurrency transactions must be declared on tax returns, whether you bought any cryptocurrency, or exchanged cryptocurrency for another cryptocurrency. Taxpayers are also required to state if they mined cryptocurrency.
Thomas Lobban, a legal manager at a local tax consultancy firm, Tax Consulting South Africa, admits that many crypto traders are not aware of the extent of their tax liabilities.
Some taxpayers have received audit letters that request that they provide reasons for their cryptocurrency investments, and provide letters from trading platforms confirming the investments.
Lobban blames SARS for not offering adequate guidance on tax treatment for crypto trading. He also says that many traders think that only withdrawals are liable to taxation.
Lobban’s warning follows reports earlier in the year which suggested that changes to South African tax laws may have made it “easier for SARS to secure criminal convictions for tax offences.” The warnings also follow reports in June which suggested that SARS had asked “independent South African crypto platforms to provide it with information pertaining to its client base.”
However, despite this dire warning, Lobban — a legal manager at a local tax consultancy firm, Tax Consulting South Africa — admits that many crypto traders are not aware of the extent of their tax liabilities. The expert partly places the blame on SARS which he says has not done enough to guide crypto holders.
In the meantime, Lobban urged South African cryptocurrency holders and traders who are not sure of their tax obligations “to approach SARS first and declare crypto profits and losses in their returns.” By doing this, they stay in SARS’ good books and avoid sanctions.
For those cryptocurrency users with an outstanding historic tax liability, Lobban says there are avenues for correction without the threat of criminal liability. However, once SARS notifies them of an impending or potential audit, options available to taxpayers become severely limited.