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Tax Implications of Cryptocurrency Trading in South Africa in 2023

Looking to understand your legal obligations on crypto taxes in South Africa?

Look no further than our comprehensive guide, where we cover everything from how SARS approaches the subject of crypto to calculating and reporting your crypto taxes .

We eve have some legal ways to minimize your tax liability.

By the end of this guide, you’ll have all the information you need to successfully report your earnings and avoid penalties.

Don’t wait until the October tax deadline for non-provisional taxpayers and risk upsetting the Taxman!

Take action now and get informed!

Do Crypto Traders Pay Tax in SA?

Unfortunately, Yes…

Kind of ironic how an industry designed to break away from conventional centralized institutions like government’s or banks, still finds itself regulated by them.

And although the guidance is limited, The South African Revenue Service (SARS) is clear that crypto is subject to tax.

They are even nice enough to give you a choice on what type of tax you get to pay, depending on if you classify as a investor, where you will pay Capital Gains Tax or a trader who is subject to Income Tax

The good news is that you are taxed on a per transaction basis, and that you only get taxed on profits, this also opens the door to many other little tips and tricks we can utilize to give ourselves the best possible chance of submitting our crypto tax returns an efficient and penalty free manner, which we will look into after covering the basics

For now, let’s explore

How much tax do South-African Crypto traders have to pay?

In South-Africa, we pay crypto taxes according to a specific transaction.

While there are a few exceptions, this basically means that you basically pay crypto tax on what you earn in profit.

Before we can determine how much tax you are subject to, we now need to establish if you are paying taxes as a trader or as an investor.

Who decides if you are a trader or investor?

Naturally, it would be the only South-African government department that works without interruption through pandemics, corruption, load-shedding and even riots:

The South-African receiver of revenue (SARS).

What’s the difference between income tax as a trader and capital gains as an investor?

Well for most people, Capital gains tax is simply a part of their income tax submission process, however the confusing part comes into play when we start to actively trade as our primary source of income

Suddenly, it is up to the receiver.

Luckily, there are a few things we can do! Let’s first explore:

10 Major differences between investing in crypto and trading crypto in SA

Traders	Investors
Are subject to income tax on their profits from buying and selling assets	Are subject to capital gains tax on the profits they make from selling assets
Can deduct their trading expenses, such as transaction costs and software fees, as business expenses	Cannot deduct their investment expenses as business expenses but may be able to deduct some investment-related expenses, such as interest on loans used to purchase investments
Are required to keep detailed records of their trades for tax purposes	Are also required to keep records of their investments but may have less frequent reporting requirements
May have a higher tax liability due to their more frequent trading activity	May have a lower tax liability due to the preferential tax treatment of long-term capital gains
May be eligible to register as a provisional taxpayer and pay tax on their profits throughout the year	Typically do not need to register as a provisional taxpayer unless they have other income sources
May be subject to VAT on their trading activities if they meet certain criteria	Are generally not subject to VAT on their investment activities
May be eligible to deduct losses from their trading activities against their taxable income	May be able to offset capital losses against capital gains but cannot offset them against other forms of income
May be subject to additional taxes, such as securities transfer tax, on certain types of transactions	Are generally not subject to additional taxes beyond income tax and capital gains tax
May be subject to a higher tax rate if their trading activity is considered to be their primary source of income	Are generally taxed at their marginal tax rate on their capital gains
May need to consider the tax implications of using leverage or derivatives in their trading activity	Generally do not need to consider the tax implications of using leverage or derivatives in their investment activity

To help us further understand what this means and how this effects us, we now need to look at the difference between Income Tax and Capital Gains Tax.

What is Income Tax?

Income tax is a tax levied on all income and profit received by a taxpayer (which includes individuals, companies and trusts).

Here are the:

South-African Personal Income Tax Rates for 2024

​Taxable income (R)	​Rates of tax (R)
1 – 237 100	18% of taxable income
237 101 – 370 500	42 678 + 26% of taxable income above 237 100
370 501 – 512 800	77 362 + 31% of taxable income above 370 500
512 801 – 673 000	121 475 + 36% of taxable income above 512 800
673 001 – 857 900	179 147 + 39% of taxable income above 673 000
857 901 – 1 817 000	251 258 + 41% of taxable income above 857 900
1 817 001 and above	644 489 + 45% of taxable income above 1 817 000

It is also worth mentioning that Corporate Income Tax (CIT) for the financial year of 2024, starting on the 1st of April 2024 is 27%, down 1% from 2023.

This will come in handy when we start exploring how you can potentially reduce the amount of tax you pay, through options such as starting your own company to avoid paying income tax at the inflated rates that natural people do in South-Africa.

Now we need to look at:

What is Capital Gains Tax?

As we mentioned above, Capital gains tax (CGT)  is not a separate tax but rather forms part of your income tax submission.

A capital gain arises when you dispose of an asset for proceeds that exceed its base cost.

The legislation governing both income & capital gains tax are contained in the South African Income Tax Act 58 of 1962.

Now that we know how they are defined and how they fit in with each other, let’s look at:

Getting taxed as a Investor

As you can see above, time horizon and activity the main differences between traders and Investors.

One of the major perks of being an investor is that before paying capital gains tax, any natural person will receive an annual R40,000 exclusion.

It is worth noting that every individual has this tax pocket available to them, even traders, only that you cannot make use of it on your short term trades.

The good news is that this pocket does not fall away even if you are a day trader by profession, you can still make use of it, just not with your direct trading profits.

As an investor this means that you have an allotment of R40000’s worth of net profit before you need to pay any tax, thereafter for taxpayers who are natural persons. 40% of any gain is subject to tax. 

So to calculate your taxable gains for the year, take your net capital gain – less any losses and exclusions – and multiply it by 40 percent.

This is the figure you’ll pay tax on. The effective tax rate is a maximum of 18%, for taxpayers who are natural persons . So you’ll never pay more than 18% in tax on your taxable gains, but you may pay a lower rate of tax as the formula to calculate your tax rate after deductions is still based on your total annual income.

Getting taxed as a Trader

Crypto taxes in South Africa are subject to our standard tax laws, and their tax obligations depend on various factors, such as their residency status, the frequency and volume of their trading activity, and the purpose of their crypto holdings .

Basically if you trade with high frequency and a short turn around time, you will fall under the category of a crypto trader and your profits will be viewed as the equivalent of a monthly salary, and taxed according to the latest Income Tax rates from SARS.

In some ways this is easier, as you can now reinvest your earnings into other investments where you will be able to utilize your R40000.00 Tax exemption pocket

Now it is interesting to note, that despite some amendments to privacy rights in 2021, other than a statement issued in 2018 that confirms that cryptocurrencies are subject to South Africa’s existing tax law, South Africa’s tax authorities have not still not provided specific guidance on the tax treatment of cryptocurrencies.

SARS has however taken some steps and launched a cryptocurrency tax task force to improve their understanding of the sector and to develop a framework for taxation.

5 best practices for crypto traders in South Africa to avoid complications and penalties:

1. Keep accurate records: Keep detailed records of all your crypto transactions, including purchase price, sale price, and dates of each trade.
2. Consult with a tax professional: Get professional advice to ensure you are aware of your tax obligations and optimize your tax planning.
3. Beware of leverage and derivatives: Be aware of the potential risks of using leverage or derivatives in your trading activity, and consider the tax implications of these strategies.
4. Stay up-to-date with regulations: Keep yourself informed of the latest developments in cryptocurrency taxation laws and regulations in South Africa to ensure you are always compliant with the law.
5. Exercise caution: Avoid engaging in fraudulent activities, such as tax evasion, and always exercise caution when dealing with cryptocurrencies to ensure the security of your assets.

Crypto is a new frontier and while we have had some control measures in place, many protocols and products have been largely unregulated in South-Africa.

SARS as our governments source of main income with the help of other financial governing bodies like the Financial Sector Conduct Authority (FCSA) are desperately trying to amend this and sooner they will succeed and regulations on South-African Crypto will increase, which you can learn more about in the 4th installment of this series on South-African Crypto trading :

Future Developments and Trends in the Cryptocurrency Market in South Africa

Overall, the moment you make substantial profits, as a South African crypto trader it’s recommended that you consult with a tax professional to ensure they are compliant with all relevant tax laws and regulations.

This will not only save you time, but money too!

How do I get recognized as an Investor or a trader by SARS?

As we have just gone over in the previous sections, while getting classified as a trader is not the end of the world, it may be inconvenient to those of in higher tax brackets or with full time careers to have their crypto transactions labeled as trading instead of investing.

Getting recognized as a trader is simple, you only need to actively trade and submit your returns accordingly.

SARS is likely to view you as a trader by default, meaning that if you want to be recognized as an investor instead, it is up to you to justify your case to them.

5 Things you can do to be recognized as an investor by SARS

1. Hold assets for the long term: Investors typically hold assets for longer periods of time than traders, so consider buying and holding cryptocurrencies as a long-term investment (3-5 years). This will show that you are not conducting frequent trades and could be viewed as an investor rather than a trader by SARS.
2. Limit your trading frequency: Minimize your trading activity to reduce the risk of being classified as a trader by SARS, as traders are subject to different tax regulations than investors.
3. Not participating in revenue-generating protocols like NFT’s, yield-farming or staking; While there are high rewards to these protocols, your profits from them will classify you as a trader. The return on these activities can be substantial, so it is well worth weighing the pro’s and con’s of this choice.
4. Maintain a diversified portfolio: Invest in a diversified portfolio of cryptocurrencies to spread the risk of your investment. This will show that you are investing for the long term rather than engaging in short-term trading activities and allow you to utilize your tax pocket
5. Be patient: Show that you have a patient approach to investing in cryptocurrencies, and avoid engaging in speculative activities. This will demonstrate that you are investing for the long term rather than engaging in short-term trading for quick profits.

SARS will likely view you as a trader and tax you accordingly, especially if you are heavily invested into income-generating protocols.

On the other hand, you may be recognized as a Trader if you are active in income-generating protocols throughout the crypto-sphere and frequently break the guidelines for investors shown above.

This is determined on a case-by-case basis, and different transactions may be treated differently.

How do I report income from cryptocurrency?

The easiest way to file your taxes in South Africa is online using SARS eFiling.

When to report your crypto taxes

The South African tax year runs from the 1st of March to the 28th of February the following year. The tax season opens on the 1st of July and the deadline to report your taxes is the 24th of October for the 2023 tax year.

This means South Africans are currently in the 2022-2023 tax year and reporting on the 1st of March 2022 to 28th of February 2023 tax year. They need to file their 2022 – 2023 annual tax return including their crypto taxes by the 24th of October 2023, for non-provisional taxpayers.

Of course, although the tax deadline isn’t until October, you may need to factor in provisional tax ahead of this deadline

.

Taxable vs Non-Taxable transactions in SA

Taxable Transactions	Tax-Free Transactions
Selling crypto for fiat currency – like ZAR.	Buying crypto with fiat currency.
Swapping crypto. Where there is a clear change in value, SARS may regard this as a capital gain or income to be included in the gross income of the taxpayer. i.e. From USDC to VALR and the transfer results in an increased net value.	Holding crypto.
Spending crypto.	Transferring crypto between your own wallets. Though there is little to no guidance on this as yet, it is known that the SARS will most likely look at the substance over form of the transaction and thus where a clear gain as a result of a transfer between wallets is identified, this will most likely be viewed as a deemed disposal under the 8th Schedule of the Income tax act – where the proceeds are regarded as capital in nature.
Getting paid in crypto is included under gross income.	Donating Crypto
Revenue generating protocols such as DeFi, Nft’s and Mining and staking rewards. Taxable as considered income to the benefit of the taxpayer and therefore included under the taxpayer’s gross income.	—
Bonuses – like referral and sign-up bonuses.	—
Gifting crypto	—

Taxable transactions include selling crypto for fiat currency, swapping crypto, spending crypto, getting paid in crypto, mining and staking rewards, bonuses such as referral and sign-up bonuses, and gifting crypto.

On the other hand, tax-free transactions include buying crypto with fiat currency, holding crypto, and transferring crypto between your own wallets. It is important to be aware of these distinctions when engaging in crypto trading in South Africa to ensure compliance with tax regulations.

How to avoid crypto taxes in South Africa

Before you start thinking of avoiding or evading your crypto taxes…

Think again.

The fines and penalties are pretty severe.

Also, this is not a guide on tax evasion.

This does not mean we cannot work out some creative ways to avoid paying all our hard earned gains into the hole filled bucket that is South-Africa’s ANC run government.

Before we look into those. let’s first determine what is legal and what is illegal and clarify:

The difference between tax evasion, tax fraud and tax planning.

• Tax planning is Legal.
  This involves optimizing your taxable position to reduce your tax liability using a variety of strategies like tax loss harvesting, utilizing tax credits and so forth.

• Tax evasion is Illegal.
  Whether intentionally or unintentionally, you avoid paying your tax liability. Section 235 of the Tax administration Act (TAA) clearly classifies tax evasion as a criminal offence.

• Tax fraud is Illegal.
  Fraud is included under the definition of a “tax offence” per the TAA. This happens when you intentionally misrepresent your financial position to SARS.

Under the TAA, the SARS is able to freely dish out some heavy penalties for tax evasion or fraud and can carry a maximum prison sentence of up to five years, unless you’re the president

There are administrative penalties – even just for being late on your tax return – up to R16,000 a month depending on your income, for each month that non-compliance continues, for a maximum of 35 months.

What if you previously avoided crypto taxes unintentionally

Luckily for you, SARS has what’s known as a voluntary disclosure program (VPD) to enhance voluntary compliance. You can use the VPD to voluntarily disclose any prior tax avoidance with SARS.

It’s important to note, using the VPD doesn’t guarantee you won’t face additional fines – but those who use the VPD are generally viewed far more favorably by SARS than those who don’t. 

Fortunately,

there are a number of legal steps you can take to plan your crypto taxes accordingly and reduce your overall tax liability

Let’s explore the:

10 best ways to legally reduce tax liability on crypto profits:

1. Utilize the annual exclusion: Each individual taxpayer gets an R40,000 exemption from Capital Gains Tax known as the annual exclusion. So your first R40,000 of capital gains each year are tax-free.
2. Utilize tax rebates: There are a number of Income Tax rebates available for South African taxpayers, depending on your age and earning bracket- you could get anywhere between R15,714 to R27,198 as an annual Income Tax rebate available to all taxpayers.
3. Track and deduct allowable expenses: Tracking your precise base cost and allowable expenditure can make a big difference to your tax bill if you’re an active investor. The majority of crypto exchanges charge trading fees whenever you buy, sell or trade crypto, and you’ll also pay gas fees (transaction fees) when you use DeFi protocols. Provided your fee is an allowable expenditure (so is directly related to acquiring or disposing of an asset), then you can add these fees to your base cost and reduce your subsequent gain.
   
   Using a legitimate exchange like Bybit or Binance makes accessing your trade records substantially easier as you are simply able to export the data to a *.csv file
   
4. Harvest unrealized losses and offset against gains: Tracking and identifying unrealized losses ahead of the end of the financial year can help you offset a large capital gain for the year. Harvest them to realize your loss by selling, swapping, spending or gifting them and reduce your gains.
5. Try and be taxed as an investor: Strategize your investment activities so SARS is more likely to view you as an investor, as opposed to a trader. For example:
   – Buy and hold crypto assets for an extended period of time, at least 3 years.
   – Avoid revenue-generating DeFi protocols like staking, liquidity mining, or yield farming.
   – Avoid making regular short-term trades or disposals.
6. Open a corporation: Forming a corporation can be a good option for serious traders who want to reduce their tax liability on crypto profits. This can help you separate your personal income from your business income and allow you to deduct certain business expenses.
7. Donate crypto to charity: Donating crypto to charity can help you reduce your tax liability while also supporting a good cause. By donating your crypto to a registered charity, you may be able to claim a deduction on your tax return.
8. Invest in a retirement account: Investing in a retirement account, such as a pension or provident fund, can help you reduce your tax liability on crypto profits. These accounts offer tax benefits, such as tax-free growth and tax deductions on contributions.
9. Use tax-loss harvesting: Tax-loss harvesting involves selling an investment that has lost value in order to offset the taxes owed on gains from other investments. This can be a useful strategy for reducing your tax liability on crypto profits.
10. Seek professional advice: Working with a qualified accountant or tax professional can help you navigate the complex tax laws surrounding crypto investments and identify additional strategies for reducing your tax liability. You can find a qualified crypto accountant on the South Africa chartered accountants association (SAICA)
    

Conclusion

In conclusion, navigating the world of crypto taxes in South Africa can be complicated, but with the right tools and strategies, you can minimize your tax liability.

Additionally you now have all the information to utilize the annual exclusion and tax rebates, track and deduct allowable expenses, harvest unrealized losses, be taxed as an investor, and consider opening a corporation.

Taking these actions will leave you well prepared and penalty free to enjoy your earnings.

If you found this article useful and are looking for the best exchange to invest your assets, I strongly recommend checking out part 5 of this series where I explain why as a South-African I find Bybit to be the best platform for derivative trading and Binance for your spot trada

Next up we take a look at the Future Developments and Trends in the Cryptocurrency Market in South Africa

Be sure to also check out the other articles in articles in this 5-part series:

1. Introduction to cryptocurrency trading in South Africa
2. Legal and Regulatory Framework for Cryptocurrency Trading in South Africa
3. Tax Implications of Cryptocurrency Trading in South Africa
4. Future Developments and Trends in the Cryptocurrency Market in South Africa
5. Picking the right exchange for trading cryptocurrency in South-Africa

Then head over to our trading resources to make sure you have the knowledge and capability to match your shiny new trading platform!

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