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

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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/       
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If you are in debt with SARS or received a notice of final demand, there’s no need for panic, says Thomas Lobban, Tax Legal Specialist at Latita Africa.

"You’re not the first and you won’t be the last; there are generally honest ways to get through this without taking big hits," he says. Which is exceptionally good news now that SARS is upping its debt collection game to never-before-seen levels of efficiency.

A word of advice
The first and most important step is for you to take action immediately.

"The last thing you want is to stay shell shocked and just stand there like a deer in headlights," advises Lobban. "You must do something proactive right now."

Because if you don’t, you can be sure SARS will. That includes collecting the tax debt from third parties, like your employer, your bank, your investment broker or anyone else who owes you a buck. SARS is also empowered, where necessary, to attach your assets in order to collect on the tax debt.

So, tick-tock, time’s a-wasting.

Clean the slate, bottom up
The second step might simply be to admit that if you’re in trouble, you’ve either been trying to do it all yourself - and you’ve been getting it wrong. Or, you’ve been receiving poor advice and bad service from a tax advisor who’s not up to speed on tax or tax law themselves. You might even “know a guy”, and it goes belly-up (or worse, nowhere at all).

That doesn’t mean you should blame yourself, only that you acknowledge it’s time for a radically new approach – working with someone who knows what they’re doing.

Just recently, SARS Commissioner Edward Kieswetter mentioned 53 tax practitioners who remain non-compliant in their own tax affairs. This, he said, "explains, in part, how they advise their clients and why their clients are equally delinquent." Ouch.

"There can often also be a correlation drawn between how well you resolve your tax debt and the competency of the tax advisor who mediated with SARS on your behalf," says Lobban.

So, above all, perhaps don’t try to fix the problem using the same party that got you into it in the first place.

Your options
There are really only two conditions that make a difference: SARS got their sums or facts wrong, or SARS got their sums and facts right.

If they are wrong, you can work with your new tax practitioner to dispute their assessment and bring the tax debt back to reality.

If SARS is right, then you may face a tax debt that is onerous or downright unaffordable.

However, you still have two saving graces at your disposal.

Defer the debt
First, you can negotiate with SARS to defer the debt, which means developing a payment plan that allows you to pay it off in reasonable instalments.

Deferment is also handy in some cases where you intend to dispute the assessment, because of SARS’ "pay now, dispute later" policy – it can cushion you from an immediate and possibly unaffordable full settlement.

Compromise the debt
Second, if you qualify, you can enter into a tax debt compromise agreement with SARS in terms of section 200 of the Tax Administration Act. This allows you to reduce your tax liability, sometimes substantially.

Be aware, though, that the compromise process involves an invasive assessment, requiring SARS to dig deeply into every aspect of your finances and personal wealth. And a final settlement must still be fair to the South African fiscus.

Get the law on your side
Any of these situations are best handled through a tax advisor with legal muscle to spare and a firm grasp of SARS’ often confusing and complex debt resolution processes. This is especially the case where there are other potentially problematic issues the taxpayer is facing.

Many tax practitioners – especially newly minted ones – don't usually have legal expertise or the experience to negotiate effectively with SARS in sensitive matters.

"But, rest assured that how well your practitioner deals with SARS will likely determine how beneficial the outcome is for you and how little stress you ultimately have to suffer," says Lobban.
Now go beat this thing!

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