Developments in the crypto taxation environment are putting pressure on crypto asset owners to declare their transactions and to come clean on previously undeclared earnings.
The latest development is the release of the Draft Guide to the Taxation of Crypto Assets published by the South African Revenue Service. The deadline for public comment is the end of August.
Read: SARS draft guide sets out tax implications for crypto transactions
Nico Theron, founder of Unicus Tax Specialists, says the guide sets aside some common misconceptions about the taxation of crypto assets. One is that crypto transactions only trigger a tax liability when it is converted into fiat currency.
The guide provides specific examples of how transactions – through arbitrage, staking, bartering, or mining – will be taxed. Theron believes the guidance is “fairly clear”.
It provides guidance on the income tax and capital gains tax consequences that may arise for persons transacting in or holding crypto assets.
“Given the constant innovation and development in this technology, the principles considered in this guide are designed to be foundational, rather than overly specific,” SARS stated in the guide.
Short term profit or long-term investment
A guiding principle is the intent of the taxpayer. One example in the guide deals with crypto arbitrage. This is a trading strategy that takes advantage of price differences for the same crypto asset across different exchanges.
An arbitrage trader buys at a low price on one exchange and sells for a higher price on another exchange, profiting from the discrepancy in prices.
Arbitrage trading is inherently profit-driven. Accordingly, all actions by an arbitrage trader will be on revenue account. Being of a revenue nature, profits and losses will effectively be included in taxable income.
Crypto asset mining requires significant computing power, and miners must invest in computer hardware and electricity. Each miner uses computing power to try to be the first one to solve a mathematical problem – that is, to validate the transaction and generate the code for purposes of adding it to prior blocks in the blockchain.
A taxpayer conducting an activity of crypto asset mining meets the definition of a person conducting a “trade”. Once the blockchain transaction is successfully verified, the miner is rewarded with a crypto asset or a portion of a crypto asset. The market value of the crypto asset must be included in the gross income of the miner.
According to the draft guide, the miner may be entitled to a deduction or allowance, such as a wear-and-tear allowance for the computers used in the “mining” process. They may also be entitled to a deduction for electricity used in the process and salaries paid to staff to run the computers.
Increased visibility
Another development in the crypto arena is South Africa’s adoption of the Crypto Asset Reporting Framework (CARF), effective from March this year. The CARF is a new international standard on the automatic exchange of information between tax authorities developed by the Organisation for Economic Co-operation and Development (OECD).
Crypto asset service providers are required to collect and report detailed data on transactions involving crypto assets to their relevant tax authority, which will then exchange this data with other tax authorities.
These service providers include “any individual or entity that, as a business, provides a service effectuating exchange transactions for or on behalf of customers”.
Theron notes that the CARF has increased the visibility of crypto transactions significantly, raising the risks for taxpayers with undeclared assets. He advises them to consider applying for leniency under the Voluntary Disclosure Programme (VDP) before filing their 2025/26 tax returns.
If they file without coming clean, the odds are that they will be selected for an audit. Once that happens, the relief against penalties and potential criminal prosecution is off the table. The submission deadline for provisional taxpayers is 22 January 2027. However, it will be crucial to prepare the necessary supporting documentation for a VDP application as soon as possible.
“That is the correct approach. Taxpayers should not assume that their crypto activity will remain unnoticed,” says Theron.
Exchange control concerns
Besides tax there are also exchange control considerations. BDO director Hylton Cameron in a recent article referred to two court cases that illustrate the uncertainty around the application of exchange control rules to crypto currencies.
The first case, Standard Bank of South Africa v South African Reserve Bank and Others, is on appeal from the High Court in Pretoria. The judgment basically said cryptocurrency is not “capital” and therefore not subject to exchange control.
Read: High Court ruling on crypto exchange control suspended pending appeal
The essence of the second judgment, Mangundhla and Another v South African Reserve Bank and Others, is that Bitcoin (or any other cryptocurrency) is “capital” for exchange control purposes and hence subject to exchange control rules. This judgment is currently persuasive for other High Courts pending the outcome of the Standard Bank appeal.
Read: Judgment adds to uncertainty over crypto’s exchange control status
Cameron notes that South Africans considering taking funds offshore with Bitcoin or have done so with similar cryptocurrency run a significant risk that the transactions can be subject to the current exchange control rules.
Amanda Visser is a freelance journalist who specialises in tax and has written about trade law, competition law, and regulatory issues.
Disclaimer: The views expressed in this article are those of the writer and are not necessarily shared by Moonstone Information Refinery or its sister companies. The information in this article is a general guide and should not be used as a substitute for professional tax advice.
