Crypto Tax Maze: New CASP Licenses Highlight Urgent Need for Clarity in South Africa

South Africa’s Financial Sector Conduct Authority (FSCA) recently approved the license applications of 63 more crypto asset service providers (CASPs). They are therefore now authorised to act as financial services providers.

This brings the total number of approved CASPs to 138 of the current 383 applications.

The good news is that this forms an important part of South Africa’s project in escaping its grey-listed status with the Financial Action Task Force. However, when it comes to taxpayers maintaining their compliance with SARS, many crypto traders remain none the wiser about the correct tax treatment of their investments.

“In some ways, SARS and National Treasury expect crypto-active taxpayers to remain compliant while the rules around crypto are still abstract,” says Thomas Lobban, Tax and Legal Sr. Associate at Latita Africa.

According to Lobban, authorities are perceived by many to be putting the cart before the horse as they focus on enforcement first but much less on clarifying crypto taxation mechanics.

CASP regulation takes hold
Lobban says that Latita Africa fully supports the regulation of the crypto economy, which promises to:

• Stabilise the often-volatile local crypto markets
• Protect consumers from fraud and predatory practices within those markets
• Restrict money laundering schemes and the funding of terrorism
• Prevent tax evasion
• Recover undeclared income and capital gains

​
As CASPs start to implement know-your-customer processes, once anonymous usernames are being replaced with detailed customer records.

“The warning in this is that not only will current and future crypto trades be exposed to SARS’ data collection efforts, but also historic untaxed transactions previously protected by that anonymity,” says Lobban, “While this is certainly nothing new, as SARS has requested taxpayer information from CASPs before, this information will now be much more readily available.”

It remains to be seen whether SARS will apply its formidable AI technologies to crypto trader records en masse or if it will initially focus on high-value targets only.

Complex treatment
South African law does not recognise the term “cryptocurrency”. Instead, crypto is seen as a digital asset (“crypto asset”), not unlike property or stock market shares.

Its basic tax treatment depends very much on how it is acquired and disposed of, being revenue from a trade stock sale, income earned from employment, capital gains on disposal, a windfall from a competition, or some other source. And it is taxed accordingly.

But it’s not that easy to determine a crypto asset’s tax status. “If I buy and sell crypto in the short term, it’s not necessarily income, and if I hold it over a long period, its disposal is not necessarily counted as capital,” says Lobban.
In addition, crypto taxation can be a more multilayered tax experience.

For example, loans leveraged in crypto, or interest earned in the form of crypto, still leave key questions open-ended. Many of the tools currently available to taxpayers, for calculating their profits and losses in crypto for tax purposes, still miss the mark in insidious ways.

As another example, exchanging rand-bought Bitcoin for an NFT and later converting the NFT back to Bitcoin is not a passive transaction just because rands are not involved. Both are considered to be assets and, by law, the mere exchange of assets triggers tax implications at that instant.

They are therefore required to pay tax in rands at the prevailing exchange rate in the tax year the transaction was completed, even if they never cash in the Bitcoin. This goes against the commonly held but mistaken belief that tax is only assessed when the crypto asset is converted back to fiat.

Crypto confusion
Lobban says that SARS and National Treasury should focus more on providing further clarity and removing the ambiguity in the tax laws applicable to crypto assets, to create certainty around how different classes and instances of crypto assets will be taxed. And it should endeavour to better educate crypto traders on these treatments.

“This is not a rare occurrence. Notably, for traditional stock trading, section 9C of the Income Tax Act generally deems shares held for more than three years as being subject to CGT on their disposal, not income tax,” says Lobban. “This type of clear direction is what crypto traders need to remain tax compliant and authorities should be driven to provide this as much as they are in the equally important imperative of enforcing the current laws.”

ENDS
 
MEDIA CONTACT: Idéle Prinsloo, [email protected], 082 573 9219, www.atthatpoint.co.za 
 
For more information on Latita Africa please visit:
Website: https://latitaafrica.com/
LinkedIn: https://www.linkedin.com/company/latita-africa/?originalSubdomain=za
Facebook: https://www.facebook.com/latita.africa/       
X: https://twitter.com/latita_afric

---