This content is published here with the kind permission of the author, Megan Stuart-Steer of ENS
Transactions in cryptocurrencies
1) Are individuals taxed on gains on the sale of cryptocurrencies?
Yes. Any gain on the sale of cryptocurrencies will either be capital or revenue in nature, depending on the profile of the relevant individual and any trade carried on (determined according to ordinary principles applied to the relevant facts). Capital gains are taxable at a maximum effective rate of 18% and revenue gains are taxable at the individual’s applicable marginal rate (up to 45%). Notably, cryptoassets are included in the definition of “financial instruments” so that any losses arising pursuant to a trade which constitutes “the acquisition and disposal of any cryptoasset” may not be set-off against the individual’s other taxable income (i.e. such losses will be ring-fenced and may only be set-off against income derived from the same trade).
2) Is cryptocurrency subject to yearly mark-to-market valuation?
There are no specific rules requiring yearly mark to market valuation of cryptoassets. The accounting treatment would determine this, under normal South African tax rules.
3) Are corporates taxed on gains on the sale of cryptocurrencies?
Yes. Any gain on the sale of cryptocurrencies will either be capital or revenue in nature, depending on the profile of the relevant corporate and any trade carried on (determined according to ordinary principles applied to the relevant facts). Capital gains are taxable at a maximum effective rate of 21.6% and revenue gains are taxable at the corporate rate of 27%. Notably, any losses arising pursuant to a trade which constitutes “the acquisition and disposal of any cryptoasset” may not be set-off against the corporate’s other taxable income (i.e. such losses will be ring-fenced and may only be set-off against income derived from the same trade).
4) Is payment for goods/services in cryptocurrencies a taxable event?
Yes.
5) What is the tax treatment of cryptocurrencies received from mining?
Although not binding, the South African Revenue Service has released an FAQ indicating their view that cryptoassets received from mining will be regarded as a revenue receipt in nature for tax purposes (see Questions 1 and 2 above).
6) What is the tax treatment of cryptocurrencies received by airdrop?
Assuming the airdrop is not a consideration for any goods or or services provided by the recipient, then the receipt is likely to be capital in nature in the hands of the recipient and should not give rise to South African tax implications. The cryptoasset received would have a zero cost tax basis for the purpose of a subsequent disposal.
7) What is the tax treatment of cryptocurrency received from staking?
The full analysis is fact specific and will depend on the terms of the particular arrangement. However, the market value of the cryptoassets received from staking would be subject to income tax in the hands of the recipient (see Questions 1 and 2 above).
8) What is the tax treatment of the lending of cryptocurrencies?
The full analysis is fact specific and will depend on the terms of the particular arrangement. However, the ‘interest’ amounts received as consideration for the lending arrangement (whether in cash or kind) would be subject to income tax in the hands of the recipient (see Questions 1 and 2 above).
9) What is the tax treatment of a hard fork?
If a new or different cryptocurrency is obtained as consequence of the hard fork, this would constitute a disposal and should be treated akin to a barter transaction.
10) What is the tax treatment of employee salary in cryptocurrency?
The value of the cryptoassets received is considered to be remuneration for tax purposes and is subject to employees’ tax.
11) How are gifts of cryptocurrency taxed, including in-game rewards?
Assuming the gift is not a consideration for any goods or services provided by the recipient, then the receipt is likely to be capital in nature in the hands of the recipient and should not give rise to South African tax implications. The cryptoasset received would have a zero cost tax basis for the purpose of a subsequent disposal.
If the gift is made gratuitously or with disinterested benevolence (which is unlikely to be the case in respect of in-game rewards), the person making the award or gift may be subject to donations tax in South Africa at the rate of 20% on the first R30 million (and 25% on any additional amounts), if they are a South African tax resident and no exemptions or exclusions apply.
12) Is there a tax-deferral when exchanging cryptocurrency/assets?
No.
13) Is there any transfer tax on the acquisition of cryptocurrencies?
No.
14)Are there obligations to declare cryptocurrency to tax authorities?
Yes, certain income tax return fields in South Africa make specific reference to cryptoassets.
15) Are there reporting obligations for cryptocurrency transactions?
Yes, in addition to the specific fields noted in Question 14, taxpayers must report their cryptoasset transactions in accordance with their normal tax reporting obligations.
16) How are cryptocurrency transactions treated for VAT purposes?
The issue, acquisition, collection, buying or selling or transfer of ownership of any crypto asset constitutes an exempt financial service for South African VAT purposes (subject to various exceptions and exclusions).
Initial Coin Offerings
17) What is the tax treatment of Initial Coin Offerings for issuers?
This is a fact-specific analysis, which will depend on the terms of the ICO and the cryptoasset which is issued.
18)What is the VAT treatment of the ICOs, including rules on vouchers?
See Question 16 above.
19) Are ICOs liable to any stamp duty?
No.
Transactions in NFTs
20) What is the tax treatment for individuals of the creation of NFTs?
There are no specific rules regarding the creation of cryptoassets / NFTs but generally their creation (of itself) is unlikely to give rise to a taxable event. A disposal of an NFT would give rise to a taxable event (see Question 1 above, assuming that the NFT constitutes a cryptoasset and does not result in any ownership rights in underlying assets etc). The responses which follow below all assume NFTs constitute cryptoassets.
21) What is the tax treatment for corporates of the creation of NFTs?
There are no specific rules regarding the creation of cryptoassets / NFTs but generally their creation (of itself) is unlikely to give rise to a taxable event. A disposal of an NFT would give rise to a taxable event (see Question 2 above, assuming that the NFT constitutes a crypto asset and does not result in any ownership rights in underlying assets etc).
22) Are NFTs taxed differently to cryptocurrencies?
No, unless the specific characteristics are more akin to another asset-class (e.g. where the NFT incorporates ownership rights in underlying assets).
23) Can tax be deferred when exchanging NFTs for other NFTs/crypto?
No.
24) What is the tax treatment of gifted NFTs (incl. in-game rewards)?
See Question 11 above.
25) Is it obligatory to declare NFTs to tax authorities?
See Question 14 above.
26) Are there tax reporting obligations specific to NFT transactions?
See Question 15 above.
28) How are transactions in NFTs treated for VAT purposes?
See Question 16 above.
Want to know more about cryptoassets and tax?
We also have guides and FAQs on how cryptocurrencies and NFTs are taxed differently in other European jurisdictions. You can view them online or download them as a single guide using the links below.
This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
