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Article was written by Lesai Seema, Candidate Attorney, checked and released by Caitlin Wilde, Senior Partner at Schindlers Attorneys.

30 June 2021


Bitcoin is widely considered the first ever decentralised virtual currency or crypto asset[1] in the world. The currency is said to have been created on or about 03 January 2009 by a developer operating under the name “Satoshi Nakamoto”, which means “Central Intelligence” in Japanese.

A decade later, crypto assets, in particular, Bitcoin, have seen a meteoric rise and consequently need to be subject to domestic tax law, more specifically the Income Tax Act 58 of 1962 (“the Act”).


Crypto assets have disrupted traditional/conventional modes of financial services such as payment and investment. Crypto assets, however, are not subject to any of the conventional regulation means used to, inter alia, reduce consumer risk due to the “untraceable” nature of the transactions.

In light of this lacuna or lack of a regulatory framework, SARS issued a media statement in 2018 that it will apply tax crypto assets.  It stated that it will not, however, issue an interpretation note, but will subject the intangible assets to the existing tax framework. The responsibility lies with the consumer to declare any holdings or losses.

SARS does not consider cryptocurrency akin to fiat currency in terms of the Act, but rather considers it an intangible asset. As such, consumers will be taxed on the income earned/accrued on the asset. Consumers will need to declare income received/accrued on their crypto assets. SARS will consider each case on the merits along with the consumer’s intention to determine whether income or capital gains tax will be applicable. Exchange platforms, such as LUNO, are able to provide their consumers with their transaction and investment history which consumers can use when filing their taxes for that tax year.  

The guiding questions to be considered by consumers are:

  • Do you regularly trade crypto assets? If yes, they are considered income. If no, they are subject to capital gains tax.
  • Have the crypto assets been purchased as a form of long-term investment? If no, they are considered income. If yes, they are subject to capital gains tax.
  • Have the crypto assets been purchased more than 3 years ago? If so, they are subject to capital gains tax. If not, they are considered income.

Types of transactions which are capable of being executed:

  1. Mining: The consumer uses their computer to solve cryptographic equations validating data blocks and transactions on the ledger.
  2. Payments: (also known as peer-to-peer payments) – This is where consumers use their crypto assets to, inter alia, make payment for goods, access utilities and services.  An increasing number of South African stores are accepting crypto, including Takealot, The Tea Merchant, Cape coffee beans, Aphrodata and ExpressVPN. While the number of businesses accepting crypto assets as payment are waning, some larger businesses are choosing to convert a percentage of their revenue, reserve capital and legal tender into crypto assets. This is in anticipation of another rise in the acceptance of crypto assets with the increasing interest and use of smart contracts as a substitute for the traditional contract. It may be that the involvement of government in crypto assets has discouraged libertarians for the time being. There does, however, appear to be genuine promise of exponential growth in the use of crypto in the open market. It seems that it may not be a matter of if, but when, one will be able to buy residential and commercial property in Waterfall or Somerset West using crypto assets.
  3. Trading: This is where the consumers speculate on the price movements of crypto assets and profit off the short-term buying and selling of the assets.

What happens if you do not disclose the income earned/accrued to SARS?

There are indications that SARS has reinforced their cryptocurrency audit and detection services and are likely able to track the consumers inflows and outflows. The SARB has further developed a Fin Tech unit and Project Khoka, which conducts distributed ledger technology tests.

Consumers who do not disclose the income earned on crypto assets will attract the same penalties ordinarily applicable for not disclosing assets. This means that consumers will be liable for a fine or imprisonment for a period of up to 2 years. Consumers who have not yet disclosed income earned/accrued are strongly encouraged to make use of the Voluntary Disclosure Programme provided for in terms of the Tax Administration Act  2011. Section 227 of Tax Administration Act states that:

“The requirements for a valid voluntary disclosure are that the disclosure must—

(a) be voluntary;

(b) involve a ‘default’which has not previously been disclosed by the applicant or a person referred to in section 226(3);

(c) be full and complete in all material respects;

(d) involve the potential imposition of an understatement penalty in respect of the ‘default’;

(e) not result in a refund due by SARS; and

(f) be made in the prescribed form and manner”

Reason for the regulation

The general opinion or “vox pop” amongst consumers is that SARS and the SARB see crypto assets as a threat to central banks as it will disrupt traditional modes of providing financial services. The peer to peer system will do away with the middleman in the form of banks, agents and brokers and the associated costs amongst others by making use of the decentralised network to complete transactions.  There are, however, commercially sensible reasons for regulating crypto assets, the foremost being the associated consumer risk. Proper regulation can serve to prevent the practice of crypto assets being used to:

  • Launder money;
  • create tax evasion schemes; and
  • finance illegal activity.

There are already reported incidents of these activities occurring. Without regulation, it would be difficult to trace and identify illegitimate transactions and keep track of inflows and outflows in the country, which could pose a national security risk. One such example is where organised crime groups use crypto assets to create liquidity in a country. Another is where prices and the market share value are manipulated by individuals or private entities. The regulation ought to ameliorate these risks.


Countries around the world have adopted varying strategies to regulate crypto assets. In the midst of all this scrambling by governments, Germany has emerged as a fiscal paradise/tax haven. Crypto assets, more specifically, cryptocurrency, will not attract any tax if held for more than 1 year. This means that, regardless of the income earned/accrued in mining, payment, or trading, consumers will not be taxed on it, should they keep their crypto-asset holding for more than a year. Consumers are, however, required to keep the transaction and investment history for a period of up to 5 years regardless of whether the inflows and outflows are taxable.

SARS have provided guidelines on how records should be kept in terms of section 29 of the Tax Administration Act –  in “their original form, in the form prescribed by the Commissioner by public notice, where a taxpayer has requested to retain records in a different form and the form is authorised by a senior SARS official.”


The increasing regulation of crypto assets by governments is unlikely to deter more people from acquiring and trading crypto assets. There is also an ever-increasing publication of guidelines that consumers should follow in order to remain compliant. Consumers, however, should still consult a tax expert to assist them in determining their tax liability insofar as it pertains to crypto-assets.

[1] “Crypto assets are digital representations or tokens that are accessed, verified, transacted, and traded electronically by a community of users. Crypto assets are issued electronically by decentralised entities and have no legal tender status, and consequently are not considered as electronic money either. It, therefore, does not have statutory compensation arrangements. Crypto assets have the ability to be used for payments (exchange of such value) and for investment purposes by crypto-asset users. Crypto assets have the ability to function as a medium of exchange, and/or unit of account and/or store of value within a community of crypto-asset users” (Crypto Assets Regulatory Working group, 2019)

Caitlin Wilde

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