IN THE LAND OF THE BLIND

FILING SEASON CAUSING ANXIETY FOR CRYPTOCURRENCY INVESTORS

With filing season fast approaching, it has become abundantly clear that SARS will have its sights set firmly on collecting tax from cryptocurrency activities.

Come the 1st of July, taxpayers will have to declare their cryptocurrency profits (or losses) for tax purposes. Given the uncertainty on taxation that is still rife in this space – for both taxpayers and many advisors – seeing SARS’ approach to cryptocurrency this filing season will certainly be very interesting.

While many still remain unaware, SARS made their position on cryptocurrency clear in their statement issued on 6 April 2018 which generally stated, among other things, that it “will apply general tax principles and tax the income or capital gains that are received or accrued to the taxpayer”. Since then, the crypto space has evolved 100-fold. We are long passed the days of strictly buying and selling cryptocurrencies with little else in between, with de-centralised finance (De-Fi) and other forms of crypto asset investment rapidly coming to the fore each day.

Regulation is definitely needed, but given the lethargic response from regulators to date, whether this would fully cover the different angles of crypto-investment and the pace of its evolution remains to be seen. What is clear, however, is that SARS is looking at this as an additional avenue for revenue collection and will not be letting up any time soon. This is problematic for taxpayers.

Adzing to this, with SARS reportedly now approaching cryptocurrency platforms for taxpayer information, those platforms themselves are also in a difficult position. While it is important to remain compliant, and many platforms are prepared to play ball with an information request from SARS, inevitably not all will sing this tune. Whether SARS is entitled to the information held in the relevant exchanges is an important question, another will soon be whether they are obliged to obtain and retain know-your-customer (“KYC”) information and records of their clients’ transactions – will this be a part of the impending regulation on the horizon?

With little clarity given to taxpayers on how best to manage their affairs, and foreseeably an obligation for platforms to place relevant information directly in SARS’ hands, pundits have been quick to try and peddle hard and fast methods which may well not hold water in practice. To be clear, there is no shortcut approach to tax and cryptocurrency is not an area where this would be acceptable. Where SARS interprets the information at their disposal differently to the taxpayer in their returns, this may well lead to devastating consequences for a taxpayer.

How SARS would see a hard-fork, airdrop, staking reward, or “interest” on a crypto-loan begs specific clarification (alongside the more “vanilla” swapping and selling transactions) – however, until then, crypto-investors are stuck in a quandary: Either they could go with their (or their accountant’s best, basic understanding) and risk a SARS audit, penalties, interest and criminal sanction, or they ensure the appropriate specialist and legal advice is obtained in each and every case and in advance. Certainty is key.

With any route taken, there is always a degree of risk. Until SARS or Treasury provides further clarity on the matter, taxpayers will simply have to take it upon themselves to ensure they are correctly advised and prepared for SARS’ digging questions.

AUTHOR

Thomas Lobban

Thomas Lobban
Legal Manager, Cross-Border Taxation