Since the introduction of the Crypto Revenue Augmentation Unit by the South African Revenue Service (“SARS”), numerous taxpayer’s who have traded, invested or even used crypto assets for purchases, have received Audit and Request for Relevant Material Notices, specifically relating to such crypto asset transactions.
Junaid Bhayla
Tax Attorney
These Notices are focused on the tax treatment of taxpayer’s crypto asset transactions, for the relevant periods in which they have made disposals of crypto assets, and SARS are indiscriminately cracking down on this potential revenue cash cow.
With SARS’ Project AmaBillions bolstering resources and recruitment to focus exclusively on the recovery of tax debt, crypto non-compliance remains on SARS’ radar, and there has never been a better time to become voluntarily compliant!
Crypto Is Not Invisible to SARS
Given the popularity of crypto asset transactions, and the potential for substantial revenue generation following from crypto asset disposals, SARS, in line with global tax enforcement trends, has significantly improved its capacity to detect crypto activity and non-compliance.
SARS’ powers exceed the ordinary, and include the power to request CSV files from Crypto Asset Service Providers. This is done through strategic partnerships with financial institutions and crypto exchanges. In fact, major South African crypto exchanges are required to submit Know Your Customer information and transaction reports, giving SARS direct insight into user activity.
This enables SARS to have sight of valuable data. With this, SARS can leverage their automation and AI driven data analytics, to cross-reference taxpayers’ declared income and assets with transactional data on the various exchanges. When discrepancies arise, audits and enforcement actions are sure to follow.
The focus on crypto assets appears to be in line with Project AmaBillions, SARS’ wide-reaching initiative to fast track the recovery of tax debt which is undisputed, and owed to SARS. This drive seems to include crypto related non-compliance, a lucrative avenue of revenue generation not only for taxpayers, but also for SARS. With an intensified data driven approach, taxpayers engaged in crypto asset transactions should ensure that their affairs are fully compliant.
What Does This Mean for Taxpayers?
Due to the nuanced nature of crypto assets as a whole, and the lack of guidance in terms of the correct tax treatment, the functions of this specialist crypto unit require more human intervention than most others.
The recent focus on crypto assets and the broader compliance drive, with initiatives like Project AmaBillions, are likely to include support for the Crypto Revenue Augmentation Unit to further identify non-compliance and recover revenue through crypto asset disposals.
Per SARS’ media release statements, it is estimated that there are at least 5.8 million South African taxpayers who have acquired crypto assets, and SARS knows that not all taxable events in respect of these assets have been disclosed.
The potential revenue collection from crypto assets is significant, and SARS is looking to dip into the crypto wallets of taxpayers, to recover what is due to them. However, this can be avoided, by taxpayers who want to avoid a “head in the sand” approach, and declare their transactions honestly.
Declaring Your Crypto Assets
Many taxpayers are not devious, and are simply unaware that they need to disclose their crypto assets – specifically the disposals from which they derive an income or profit. By way of example, disposals would include transactions such as the sale of a crypto asset, or swapping one crypto asset for another, to name a few.
Ignorance is no excuse, and the failure to disclose such transactions, specifically any gain derived from them, could have serious consequences for taxpayers. Penalties and interest may be imposed on these outstanding amounts, at percentages as significant as two hundred percent!
The tax treatment of crypto assets is in accordance with existing tax frameworks, such as profits being included in a taxpayer’s gross income, but where it can be demonstrated and properly motivated, may be included in the capital gain tax calculations of the taxpayer.
It must be borne in mind that each case is reviewed on its own merits, and that there is no “one size fits all” approach with regards to such classification of crypto asset disposals.
SARS Notices In Your Mailbox
Taxpayers who have been active in the crypto space, and have not declared their crypto transactions at all, are encouraged to engage with specialist tax attorneys and tax practitioners, to ensure that their compliance requirements are met.
Such professionals can aid taxpayers with Voluntary Disclosures, assessing their tax liability based on historical transactions and assist to regularize the treatment of crypto asset transactions. All this, while maintaining legal professional privilege (where engaging with a tax attorney) and mitigating the exposure to risk.
This recommendation is made off the back of numerous taxpayers who have received Audit Notices and Letters of Final Demand, due to SARS’ improved crypto transaction identification methods.
This clearly demonstrates the revenue authority’s intention to send a message to taxpayers – comply, or be made to comply. A strong message, when viewed with the efforts being made by the revenue authority, through Project AmaBillions.
Crypto assets are not invisible to SARS, and where a taxpayer attempts to sweep their transactions under the rug, SARS will see this and take the necessary measures to ensure that they recover what is due.
In Crypto and Compliance, Foresight Is Your Friend
SARS has the means at their disposal to identify crypto transactions, and take the necessary steps to recover any tax liability which may arise following the disposal of crypto assets.
As the methods and technology used by SARS continue to improve, so will their recovery efforts to drive revenue collection, and severe will be the punishment for non-compliant taxpayers, who attempt to obfuscate their crypto transactions. With increased manpower and resources being available to SARS, and recovery initiatives such as Project AmaBillions, there has never been a more crucial time to ensure compliance.
It is thus advisable to seek professional assistance, and bring your crypto asset affairs to heel. Taxpayers are required to treat their crypto asset transactions in the same manner as they would any other tax matter, and ensure compliance in all aspects – and you do not have to do it alone, where professionals are here to help.
