The advent of cryptocurrencies, and in particular the substantial gains that are associated with investments in cryptocurrencies, caught the attention and interest of the world – and not least of all, that of the taxman. Because where money abounds, tax is normally to be collected, notes Doelie Lessing, tax director at Werksmans Attorneys.

SARS recently issued a statement explaining its views on the tax treatment of cryptocurrencies. In summary, SARS states that cryptocurrencies are not to be treated as currency for tax purposes, and that the normal tax principles should apply to cryptocurrencies as if they are intangible assets.

The reasons provided by SARS for the view above are that (a) cryptocurrencies are not official South African tender and (b) are also not widely used and accepted in South Africa as a medium of payment or exchange, Lessing said. “If SARS is suggesting that the two reasons afforded for not treating cryptocurrencies as currency are the criteria to determine whether something qualifies as ‘currency’ for tax purposes, no currency other than the ZAR will qualify as currency.

The SARS view, and more specifically the basis for the SARS view, as to why cryptocurrencies are not tantamount to currency appears unscientific and potentially wrong, argued Werksmans Attorneys. Currency is not an asset for capital gains tax purposes, and as such, not susceptible to capital gains tax upon disposal, the legal firm said.

“Consequently, if cryptocurrency is currency, any capital gains upon disposal will escape the capital gains tax net. In contrast, intangible assets are, in principle, subject to capital gains tax (or income tax). Read more from…

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