A media statement issued by the South African Revenue Service (SARS) in 2018 represents the primary guidance available to South African taxpayers on the income tax consequences of crypto asset transactions.
This study assessed the adequacy of the guidelines available to South African taxpayers on the consequences of crypto asset transactions, and identified the income tax consequences for transactions not addressed in these guidelines.
This study compared the scope and depth of the SARS guidelines to guidance issued in other jurisdictions. This distinguishes it from other studies focusing on the theoretical income tax consequences of crypto asset transactions.
The first phase of the study was an in-depth documental analysis to benchmark the SARS guidelines against the guidance of tax authorities in other jurisdictions. In the second phase of the study, a doctrinal legal research methodology was adopted to identify the income tax consequences of transactions not addressed by SARS, applying existing legislation and case law, and taking into account the guidance of the other selected tax authorities.
The study found that the SARS guidelines did not comprehensively address all the crypto asset transactions addressed by the other selected tax authorities.
The study recommended that SARS provide comprehensive guidance to South African taxpayers on the income tax consequences of crypto asset transactions, the development of which would be supported by consequences identified in this study.
This study contributes to the understanding of, and development of taxpayer guidance to address the income tax consequences of crypto asset transactions in South Africa.
In 2018, for the first time, the South African Revenue Service (SARS) issued a media statement providing guidance and accompanying answers to frequently asked questions (FAQs) to South African (SA) taxpayers on the taxation of crypto asset transactions (hereafter referred to collectively as the ‘SARS guidelines’). The SARS guidelines indicate that ‘normal income tax rules’ will apply to such transactions, and that crypto asset gains or losses must be declared as part of taxable income (SARS
The only amendments to the
The lack of comprehensive guidance on the income tax consequences of crypto asset transactions in SA is concerning, as guidance provided to taxpayers is a potentially significant contributor to improved tax compliance (Brackin
Two objectives were pursued in this study. The first objective was to assess the scope and depth of the SARS guidelines on crypto asset transactions compared to those of other selected jurisdictions. This will add further weight to the conclusions of studies (such as by Bornman et al.
The OECD has defined financial literacy as the combination of awareness, knowledge, skill, attitude, and behaviour necessary to make informed financial decisions and attain individual financial well-being (OECD INFE
Tax administrations may follow ‘norm-orientated’, ‘service-orientated’, or ‘power-orientated’ strategies for encouraging compliance (Bornman
The first phase of this study was conducted through document analysis. Documental analysis is a process of accessing empirical knowledge and answering research questions from documented material. Documental analysis uses data from government records, regulations and statistics, as well as journals. The data assist the researcher to gain insight into a current research problem, support the research question from the data available, and generate new knowledge of the research question (Gross
In the document analysis, the SARS guidelines were benchmarked for completeness and comprehensiveness against the crypto asset income tax guidelines and regulations issued by selected countries. The United States of America (USA) was selected for comparison because it is the largest global economy, with the US Dollar considered a universal currency (Amadeo
Summary of documents reviewed for the study.
Country | Issuer | Document name | Description |
---|---|---|---|
USA | Internal Revenue Service (IRS) | Notice 2014–21 (IRS |
The IRS first addressed the taxation of virtual currency transactions in 2014 (Bal |
UK | Her Majesty’s Revenue and Customs (HMRC) | Cryptoassets for individuals (HMRC |
HMRC followed its ‘Revenue and Customs Brief 9 (2014): Bitcoin and Other Cryptocurrencies’ (HMRC |
AUS | Australian Tax Office (ATO) | Tax treatment of cryptocurrencies in Australia – specifically bitcoin (ATO 2020). | The ATO first provided guidance on the tax treatment of cryptocurrencies to taxpayers in 2014 (Bal |
SA | SARS | SARS’ stance on the tax treatment of cryptocurrencies (SARS |
Guidelines on the tax treatment of cryptocurrencies and accompanying FAQs were issued by SARS in 2018. These were consolidated on the SARS website in 2021 without significant amendment. The original statements continue to be available in PDF form on the SARS website. |
FAQ, frequently asked questions; SARS, South African Revenue Service; SA, South Africa; USA, United States of America; UK, United Kingdom; AUS, Australia.
The first phase of the study identified the transactions omitted from the SARS guidelines and the extent to which they were addressed in other jurisdictions. This analysis supports the recommendations for the scope of comprehensive guidance to address the income tax consequences of crypto asset transactions in SA.
The second phase of the analysis focused on doctrinal legal research. The doctrinal legal research method involves a systematic process for testing propositions through analysing laws, regulations, and statutory provisions (McKerchar
In the doctrinal legal research phase, the SA income tax consequences for those transactions not addressed in the SARS guidelines were analysed against the provisions of the Act, as amended, and relevant case law. In this analysis the income tax guidance provided to taxpayers in the other jurisdictions addressed in phase one is also considered. This second phase of the study supports recommendations about the appropriate consequences to be incorporated into comprehensive guidance to SA taxpayers.
The next section contains a literature review. The findings of the document analysis of jurisdictional guidance are then presented. Thereafter, the SA income tax consequences of the crypto asset transactions not addressed in the SARS guidelines are analysed. The study then concludes and makes recommendations for developing comprehensive guidance in SA. The limitations of the study are noted, and areas for future research are suggested.
This section provides a brief introduction to crypto assets, the defining characteristics of the underlying technology, and the identified taxable events to which they may give rise.
‘Currency’ is an instrument used as a medium of exchange to facilitate transactions between parties, helping buyers and sellers find the right ‘price’ at which the transaction can take place (Peetz & Mall
Although the concept of cryptocurrency can be traced back as far as 1983, it became a practical reality in 2009 with the launch of Bitcoin, which served as the prototype for the many thousands of crypto assets that exist today (Bal
Many countries and publications use different terminologies, including ‘cryptocurrency’, ‘crypto asset’, ‘virtual currency’, and ‘digital currency’ in addressing the same core concept (Parsons
The term ‘crypto asset’, as used in the remainder of this study, is consistent with the dominant terminology currently utilised in literature and guidance. However, this study focused on the income tax consequences of crypto assets in South Africa when used as a medium of exchange, which aligns with the use of the term ‘cryptocurrency’ in the SARS guidelines.
Crypto assets, like Bitcoin, use DLT to record and share data across multiple ledgers. Distributed ledger technology allows different network participants to transact with one another, with data being recorded, shared and synchronised across the network (Natarajan, Krause & Gradstein
Crypto asset tokens are stored in a ‘wallet’. Users access their wallets and transfer tokens by means of cryptographic keys (Herbert & Stabauer
While many new crypto assets are the product of a process of development, others are the consequence of a ‘hard fork’. A fork occurs when there is disagreement regarding the adoption of new protocols to the blockchain. This results in the creation of two separate blockchains: one maintaining the existing protocols and another adopting the new protocols. In some instances, this is merely a temporary situation arising from differences in timing of adoption, after which the two blockchains return to consensus. This is referred to as a ‘soft fork’ and is a frequent occurrence. In others, a permanent divergence occurs: the ‘new’ blockchain retains the transaction history of the ‘pre-existing’ blockchain but adopts a new name and results in the creation of ‘new’ crypto assets, each mirroring a pre-existing crypto asset on the pre-existing blockchain. For this reason, the holder of each pre-existing crypto asset token receives an equivalent new crypto asset token, which then proceeds to exist independently on the new blockchain. At the same time, the holder continues to hold their pre-existing crypto assets, which exist on the pre-existing blockchain and are unaffected by the new crypto assets. The hard fork of Bitcoin Cash from Bitcoin is one such example (Bernstein et al.
A comparative analytical study of over 50 countries found that most countries did not specifically amend their income tax legislation to address crypto assets (Strauss, Schutte & Fawcett
In 2020, the OECD conducted its first survey of the tax treatment of crypto asset transactions among participating countries. In that report, the OECD concluded that the following taxable events should be included in comprehensive country guidance: the creation of crypto assets by mining, ICOs and airdrops; the exchange of crypto assets for other crypto assets, for fiat currency, or goods and services (including as payment of wages); disposal by gift or inheritance; loss or theft; and hard forks (which the OECD included within ‘emerging developments’) (OECD
Income tax consequences of crypto asset transactions identified in benchmarking.
Number | Transaction | USA (IRS |
UK (HMRC |
AUS (ATO |
SA (SARS |
---|---|---|---|---|---|
1 | Exchanging one type of crypto asset for another | Capital gain or loss if held as a capital asset. Ordinary gain or loss if held as trading stock. | For individuals, considered for Capital Gains Tax (CGT), except when an individual is a trader and, as such, normal income tax rules apply. For businesses, subject to corporation tax except when held for investment, which results in CGT for individuals and partnerships, and Corporation Tax on Chargeable Gains for companies. | Will give rise to capital gain or loss. It is possible that such gain or loss may be disregarded as arising from the disposal of a personal use asset. If held as trading stock, will give rise to deductible expenditure and ordinary income. | Capital gain, if held as a capital asset; and gross income, if held as trading stock. |
2 | Exchanging crypto assets for fiat currency | Capital gain, if held as capital asset; and gross income, if held as trading stock. | For individuals, considered for CGT, except when an individual is a trader and normal income tax rules apply. For businesses, subject to corporation tax, except when held for investment. | Will give rise to capital gain or loss. If held as trading stock, will give rise to deductible expenditure and ordinary income. | Capital gain, if held as a capital asset; and gross income, if held as trading stock. |
3 | Making payments in crypto assets in exchange for products or services | Capital gain on disposal as payment, if held as capital asset; and gross income, if held as trading stock. | For individuals, considered for CGT, except when an individual is a trader and normal income tax rules apply. For businesses, subject to corporation tax, except when held for investment. | Will give rise to capital gain or loss. If held as trading stock, will give rise to deductible expenditure and ordinary income. | Normal barter transaction rules apply. |
4 | Receiving crypto assets in exchange for products or services | Ordinary income at the fair value of crypto assets received. | Ordinary income at the fair value of crypto assets received. | Ordinary income at the fair value of crypto assets received. | Gross income at the fair value of crypto assets received. |
5 | Receiving salary payments in crypto assets | Ordinary income at the fair value of crypto assets received. | Ordinary income at the fair value of crypto assets received. | Ordinary income at the fair value of crypto assets received. | Gross income at the fair value of crypto assets received. |
6 | Obtaining crypto assets through mining | Gross income at the fair value of crypto assets received. | Ordinary income at the fair value of crypto assets received. If not undertaken as a trade, amounts are included in miscellaneous income. | Ordinary income at the fair value of crypto assets received. Mining is listed as an example of a crypto asset business. The ATO guidance acknowledges that not all crypto asset transactions will occur in the context of a business, although it does not explicitly address mining outside of a business context. | Gross income at the fair value of crypto assets received. Considered to be held as trading stock until exchanged for other crypto assets or fiat currency. |
7 | Blockchain hard fork | Ordinary income at the fair value of new crypto assets on receipt. | Capital gain or loss on disposal of new crypto assets. | Capital gain on disposal of new crypto assets if the result of investment activities. Revenue income in the year of receipt if the product of business activities. | No guidance provided |
8 | Receiving an airdrop | No guidance provided (the IRS refers to an ‘airdrop’ as the receipt of new crypto assets in a hard fork) | Ordinary income at the fair value of crypto assets on receipt, if received for reciprocal action by the taxpayer. Otherwise, capital gain or loss on disposal of new crypto assets. | Ordinary income at the fair value of crypto assets received. | No guidance provided |
9 | Donating crypto assets, including to charities | Donations to charitable organisations will not give rise to income or capital gain or loss. No guidance provided on other donations. | Will give rise to capital gain or loss. Donations to charitable organisations are excluded from CGT. | Will give rise to capital gain or loss. | No guidance provided |
10 | ICOs | No guidance provided | No guidance provided | No guidance provided | No guidance provided |
11 | Loss or theft | No guidance provided | Excluded from the concept of disposal, therefore no income tax consequences. | Considered a disposal. Loss may be recognised if theft or loss of access can be substantiated. | No guidance provided |
ATO, Australian Tax Office; ICO, Initial Coin Offerings; IRS, Internal Revenue Service; USA, United States of America; UK, United Kingdom; AUS, Australia.
The SARS guidelines and FAQs were analysed and compared to guidance documents of the tax authorities of the USA, UK and Australia (see
The five crypto asset transactions not addressed in the SARS guidelines were:
blockchain hard fork,
receiving an airdrop,
donating crypto assets, including to charities,
Initial Coin Offerings, and
loss or theft.
For the transactions addressed, the SARS guidelines were broadly consistent with those of other jurisdictions regarding income tax consequences. The SARS guidelines, however, did not address business users of crypto assets to the extent of the benchmarked jurisdictions. The SARS guidelines also contained significantly less detail than the guidance of the benchmarked jurisdictions, such as worked examples for the various transactions addressed.
Having identified five transactions not addressed in the SARS guidelines in the first phase of the study, in the second phase, the determination of the appropriate SA income tax consequences of each of these five transactions are considered.
In the USA, Rule 2019–24 provides that when the fork results in the creation of a new crypto asset, which is referred to as the taxpayer’s e-wallet, then the event results in taxable income, provided the taxpayer can transfer, sell or exchange the crypto asset (IRS
In the UK, the HMRC refers only to the application of the
The ATO considers that a hard fork gives rise to CGT for taxpayers who hold the pre-existing and new crypto asset for investment purposes. It treats the new crypto assets as trading stock for businesses where it is held for sale or exchange in the ordinary course of business (ATO
In recommending an income tax consequence of a hard fork for SA taxpayers, the guidance issued by the three other tax authorities was considered. The IRS treats any income arising from a hard fork as revenue for the taxpayer, the ATO indicates that a hard fork may give rise to either a capital receipt on disposal or revenue income if held as trading stock, and HMRC only contemplates a capital gain or loss.
The taxpayer bears the burden of proving that income is not revenue in nature (s102;
Proving a capital intention with respect to crypto assets may be challenging since crypto assets do not yield any fruit, such as dividends or interest, as do other long-term investments; the yield is in the appreciation of the market value of the crypto asset. However, SA has a history of comparable cases dealing with long-term holdings of appreciating assets. In
A taxpayer benefits from a hard fork through the receipt of new crypto assets as a result of being a holder of the pre-existing crypto asset. Therefore, it is submitted that the taxpayer’s intention at acquisition for the new crypto asset might be imputed from the intention with which the pre-existing crypto asset was held. Consideration might also be given to whether any activities undertaken by the taxpayer to benefit from the hard fork amounted to a scheme of profit-making.
The SARS guidelines indicate that mining will give rise to revenue income, and do not contemplate the possibility of non-trade mining activities. This is consistent with the approach of the IRS and HMRC (which includes non-trade mining income as miscellaneous income rather than a capital receipt). Crypto assets received in mining will be held as trading stock until it is sold or exchanged. Therefore, if crypto assets obtained in mining, subsequently give rise to the receipt of new crypto assets through a hard fork, such additional crypt assets might also be initially regarded as revenue in nature (if revenue is recognised on receipt in this instance).
Recognition of revenue income may occur either initially on receipt of the new crypto asset, with a subsequent inclusion of the incremental profit upon disposal, or only upon disposal. Since the US concept of ‘accession to wealth’ is not explicitly recognised within the Act or SA case law, and since the Australian requirement to mark trading stock to market is not present in South Africa, there may be justification for recognising revenue income only on disposal. Furthermore, no trading activity or reliable market values may exist on the date of the hard fork, making any recognition of revenue on receipt difficult to quantify. However, recognition at receipt or accrual seems to most closely align with the definition of gross income in the Act. It will therefore be important for SARS to address the timing of revenue recognition in this context.
If the new crypto asset is revenue in nature and such revenue is recognised upon receipt, the value will be included in the taxpayer’s trading stock in terms of section 22(4) of the Act at its current market value upon receipt (
Alternatively, if the taxpayer is able to discharge the burden of proving that the crypto asset received, represents a capital asset, the proceeds on disposal will be taken into account in the determination of a capital gain. The proceeds will be valued at either the amount of fiat currency received or at the market value of the non-monetary proceeds received, in accordance with the barter transaction rules referred to by SARS in addressing other crypto asset transactions. It should also be noted that the possibility of crypto asset transactions falling within personal-use asset exclusions from CGT, as contemplated in Australia, is precluded by their inclusion within the definition of financial instruments in the Act in 2019 (Basson
Paragraph 20 of the Eighth Schedule to the Act stipulates that the base cost of a capital asset consists of the actual expenditure incurred in the acquisition of the asset, including the allowable expenditure directly incurred in the acquisition and disposal of the asset (
Crypto assets in both a hard fork and an airdrop are received for no consideration. However, an airdrop is typically an active distribution by a promoter of a crypto asset, rather than a by-product of events on the blockchain (OECD
The HMRC and ATO have addressed the income tax consequences of airdrops in their jurisdictions. The IRS has not specifically addressed airdrops related to marketing or advertising campaigns, but only those related to hard forks (which were considered in the preceding analysis of hard forks).
The ATO guidelines provide that an airdrop of crypto assets, received in a taxpayer’s digital wallet or e-wallet as part of a marketing or advertising campaign, is treated as ordinary income at the fair value of the crypto assets at the time of receipt. The ATO has, however, expanded its guidance to indicate that airdrops that represent the first distribution of a new crypto asset do not give rise to tax consequences on receipt, because they do not yet have a market value as they are not actively traded (ATO
If the taxpayer receives an airdrop of crypto assets in their personal capacity without assuming any corresponding obligation, HMRC advises that it will not be taxable at the time of receipt. Where crypto assets are received in exchange for services, or other performance obligations from the taxpayer, the airdrop will be included in either the taxpayer’s other income, or receipts from trade. On disposal, the proceeds from the disposal of the airdropped crypto assets will be considered capital in nature. However, if the airdropped crypto assets form part of the taxpayer’s business activities, the income tax rules will take preference over capital gains (HMRC
The ATO treats all receipts as revenue in nature, while HMRC treats only those received in return for some reciprocal action as revenue. This inclusion by HMRC would seem to address a concern that a payment might be incorrectly referred to as an airdrop, while a ‘true’ airdrop is gratuitous. The income from subsequent disposal of the airdropped crypto assets is treated similarly in both jurisdictions, namely as capital for investors or revenue for businesses.
In determining the income tax consequences of an airdrop for SA taxpayers the proposed tax treatment of hard forks was considered, because in both cases, the taxpayer involuntarily receives new crypto assets at no personal cost. As with hard forks, an airdrop increases a taxpayer’s wealth. Here too, the taxpayer will have to prove that the receipt of the new crypto assets is of a capital nature, failing which the income arising will be considered revenue in nature. It is submitted that this would likely require that the receipt of crypto assets be fortuitous rather than ‘designedly sought for and worked for’ (see
The ATO and HMRC consider that taxation first occurs, either upon receipt (if revenue), or only upon disposal (if capital). If such an approach is adopted in SA, airdropped crypto assets of a revenue nature will be taxable at the earlier of accrual or receipt date to the taxpayer, in terms of the gross income definition in section 1 of the Act. Upon receipt of the crypto asset, the taxpayer will add its value to their trading stock and any subsequent change in value will be realised upon disposal in terms of the trading stock rules of section 22 of the Act (
By contrast, taxpayers whose new crypto assets are capital in nature will have no inclusion in taxable income upon receipt, while a capital gain will only arise upon disposal. Such crypto assets will have a base cost of nil since no cost is incurred by the taxpayer.
According to the IRS, donating crypto assets to a charitable organisation will not be considered as ordinary income, or a capital gain or loss, as such transactions are exempt from tax. The value of the available charitable contribution deduction is based on the period for which the crypto asset was held. For crypto assets held for longer than a year, the value is the market value of the crypto assets on the donation date. When the crypto assets are held for less than a year, the deduction is the lesser of either the market value of the crypto assets on the date of the donation, or their cost (IRS
In the UK, charitable donations do not attract capital gains for individuals or corporation tax for businesses, unless they are ‘tainted’ (when the taxpayer enters into an arrangement to obtain financial advantage from a charity after making a donation) or represent an attempt to realise a gain from the disposal (HMRC
In the ATO guidance, the donation of crypto assets is treated as a disposal of crypto assets and, as such, will give rise to revenue income when held as trading stock, and capital disposal in other instances. The value of the donation will be the market value of the crypto assets in the calculation of the capital gains, or the application of trading stock rules (ATO
There is consensus in the IRS, HMRC and ATO guidelines that donations will give rise to either a capital or revenue disposal. The IRS and HMRC explicitly consider the availability of exemptions with respect to donations to charities.
South African taxpayers are entitled to a limited deduction for donations made to public benefit organisations (PBOs) in terms of section 18A of the Act. In terms of section 22(8)(C) of the Act, the donation to a PBO of crypto assets held as trading stock will be deemed to be disposed of at an amount equivalent to the taxpayer’s section 11(a) or section 22(1) deduction. This amount will be available for the allowable deduction in terms of section 18A. An investor will disregard the capital gains or losses for any donation made to a PBO, in terms of paragraph 62 of the Eighth Schedule to the Act, and will be entitled to a deduction of the cost of any crypto assets donated to a qualifying charity, limited to 10% of the taxpayer’s taxable income before such deduction (
For any other donation made, the normal trading stock rules or CGT consequences will apply. The cost of any crypto assets purchased as trading stock, or the value of any crypto asset giving rise to revenue on receipt, will be added to the taxpayer’s cost of trading stock on acquisition. In terms of section 22(8)(b) read with section 22(8)(B) of the Act, crypto assets held as trading stock will be deemed to be disposed of at an amount equal to the market value of the crypto assets at the time of the donation to a non-PBO (
The investor taxpayer’s capital gain or loss on the donation to any person other than to a PBO (or to other parties qualifying for exemption, such as between spouses), will be determined in terms of paragraph 38 of the Eighth Schedule to the Act. This states that the donation made will constitute a disposal with a value equivalent to the asset’s market value on the date of the donation (
Determining the income tax consequences for ICOs is complex, considering the unique characteristics of crypto assets, coupled with the fact that there are no formal guidelines available from the benchmarked authorities regarding the income tax consequences of an ICO on those jurisdictions. Unlike other financial instruments defined in section 1 of the Act, crypto assets do not provide the crypto asset holder with a residual right to the equity of a company or any rights to dividends. In an ICO, the issuer offers crypto asset tokens that the purchaser hopes will be accepted in the future by someone other than the issuer. Thus, the crypto asset purchaser has no ownership interest in or future claim against the issuer (OECD
The SA taxpayer must include in gross income the total amount received by, or accrued to the taxpayer, in cash or otherwise, during the year of assessment, excluding receipts or accruals of a capital nature (
For the purchaser, the cost of acquisition represents either a deductible expense, if acquired as trading stock, or the base cost of the crypt asset in other cases.
The IRS does not address loss or theft, while the position of His Majesty’s Revenue and Customs (HMRC) differs from that of the ATO. HMRC does not consider loss or theft to be a disposal, and therefore no income tax consequences arise. In contrast, the ATO accepts loss or theft as a disposal of no value, if the crypto asset, the wallet in which it was stored, or the access key, cannot be replaced or recovered. The taxpayer will be required to provide supporting evidence such as the cost of the crypto assets lost and the details of when they were acquired and lost.
In terms of SA tax legislation, the issue at hand would be whether a disposal has taken place. Paragraph 11 of the Eighth Schedule to the Act provides a definition of ‘disposal’, which includes ‘the sale, donation, expropriation, conversion, grant, cession, or any other alienation or transfer of ownership of an asset’, and goes on to include such events as ‘forfeiture, termination, …, cancellation, surrender, …, abandonment, …, scrapping, loss or destruction’ (
The study was conducted using the SARS guidelines, in the form of a media statement released on 06 April 2018, together with accompanying FAQs, as the basis for conducting the benchmarking exercise with other jurisdictions. The SARS guidelines are not in the form of an Interpretation Note and, therefore, are not an ‘official publication’ as defined (
The study focused on crypto assets that function as a means of payment, such as Bitcoin. Security and utility tokens, such as Neufund and Ether, did not form part of the research and may have income tax consequences beyond, or different to, those considered in this study. Furthermore, the focus was exclusively on the income tax consequences of crypto asset transactions. Other taxes, such as VAT, donations tax, and estate duty, did not form part of the ambit of this study and may present scope for further research.
This study’s first objective was to ascertain whether the SARS guidelines, provided in its statement of 2018, comprehensively addressed the income tax consequences of all the crypto asset transactions identified in the literature and dealt with in the guidance of the other benchmarked authorities (i.e. that of the USA, UK and Australia).
The SARS guidelines addressed six out of the 11 crypto asset transactions identified. In these instances, it was found that the income tax consequences were broadly consistent with those of the benchmarked countries. The SARS guidelines were, however, found to be brief and vague by comparison. They did not comprehensively address the crypto asset transactions considered or provide references to the relevant sections of the Act to support their conclusions. A high level of knowledge was assumed to be held by taxpayers. For example, the SARS guidelines referred to, but did not elaborate on, the income tax consequences of barter transactions. The SARS guidelines lacked explanatory examples that the other benchmarked authorities included in their guidance. This suggests that these guidelines were perhaps intended to be a temporary measure.
The study identified five crypto asset transactions that were not addressed by the SARS guidelines (as indicated in
The study’s second objective was to analyse and determine the income tax consequences of the five transactions not addressed by the SARS guidelines. These transactions were the hard fork of an existing crypto asset blockchain, receiving crypto assets in an airdrop, donating crypto assets, ICOs, and the loss or theft of crypto assets. In determining the income tax consequences of these transactions the application of relevant provisions of the Act was considered in this study, as well as the positions taken by the benchmarked jurisdictions.
It was found that it was possible to determine income tax consequences
This study recommends that SARS develops comprehensive guidance for the income tax consequences of crypto asset transactions. The current SARS guidelines should be elaborated on for the crypto asset transactions already dealt with, and their scope extended to include those transactions identified in the study that, to date, have not been addressed by SARS. The recommended comprehensive SARS guidance may be best positioned in the form of an official publication as either an Interpretation Note or a Comprehensive Guide, both of which are normally more detailed than the seemingly temporary media statement format employed in 2018.
In developing comprehensive guidance, consideration should be given to both the approaches of other countries referenced in this study, and to other jurisdictions that have issued comprehensive guidance. The application of the Act to those crypto asset transactions not yet addressed by SARS, but identified and addressed in this study, may also inform the development of an Interpretation Note or Comprehensive Guide. Explanatory examples, such as those included by these other jurisdictions, as well as decision trees or flow charts, would assist SA taxpayers in determining the income tax consequences of their crypto asset transactions. The guidance that is accessible, user-friendly and comprehensive is likely to assist in improving the tax compliance of SA taxpayer crypto asset users.
This article is partially based on the dissertation of the first author, Namhla Vumazonke, presented for the degree of Master of Commerce (Financial Reporting, Analysis and Governance) at the University of Cape Town, supervised by the second author, Prof S. Parsons, received 13 December 2021, available here:
The authors would like to express their appreciation to the University of Cape Town for administrative support.
The author(s) declare that they have no financial or personal relationship(s) that may have inappropriately influenced them in writing this article.
N.V. was the primary researcher as part of his Master of Commerce study. S.P. supervised the research project and contributed to the drafting of the published article.
This article followed all ethical standards for research without direct contact with human or animal subjects.
This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.
The data that support the findings of this study are available in the public domain.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of the University of Cape Town.
The other items listed by the OECD for consideration, which are not relevant to this study, were stable coins, central bank digital currencies, interest-bearing tokens, and related services, such as exchanges and wallet providers.
Or the absence of a taxable event in the case of a lost password.