Authored by: Thomas Lobban, Legal Manager, Cross-Border Taxation at Tax Consulting South Africa
 
There are many South Africans who have made investments into cryptocurrency, and we see all types of traders and investors on a daily basis. It has announced a new dawn of investment world-wide and regulators world-wide have been sluggish to respond. However, it is now firmly on the tax radar for revenue authorities world-wide; and the position of SARS seems to be no different.
 
The walls are closing in on crypto traders
In the 2021 Budget Speech, Minister Tito Mboweni announced that SARS will be provided with an additional allocation of R3 billion to “modernise its technology infrastructure and systems, expand and improve the use of data analytics and artificial intelligence capabilities, and participate meaningfully in global tax compliance initiatives”.
 
In addition to audit letters recently sent to taxpayers enquiring about their cryptocurrency-related holdings and activities, the Commissioner of SARS, Edward Kieswetter, has further stated following the 2021 Budget Speech that “[u]ndisclosed offshore assets, including crypto-assets such as bitcoin, will be a big area of focus.”
 
SARS seems to be looking at cryptocurrency as an area of additional tax revenue, and with the ability to raise 100% penalties and strengthening of criminal offenses provisions where an innocent mistake can now give you a criminal record, the law is very much in SARS’ corner. Now, the infrastructure is already being put in place to ensure that the shortfalls of SARS’ current information-gathering and tax revenue collection mechanisms are systematically closed.
 
SARS has already included questions concerning cryptocurrency in the capital gains tax portion of tax returns, and have further created source codes for cryptocurrency-trading profits (​2572) and losses (2573) respectively. This means that there is no room for a taxpayer to manoeuvre in light of non-disclosure in their returns.
 
United States Example – Are They Smarter?
The much feared Internal Revenue Service (IRS) has similarly embarked on a drive to bring previously undisclosed cryptocurrency amounts into their tax net. However, compared to SARS, it appears that the IRS is taking a much more robust approach, as no one messes with the IRS.
 
The United States have strategically placed the question about cryptocurrency holdings on page one of their tax returns (known as a 1040, which makes for a joint tax filing by a family). All United States citizens and green card holders are thus forced to answer accurately, eliminating any defences later.
 
Their question reads whether the relevant taxpayer did, at any time in the tax year, “receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency”.
 
This means that, regardless of whether or not and how cryptocurrency was acquired by the taxpayer, they are expected to disclose this to the IRS. In 2019, more than 10 000 letters were sent to taxpayers who had carried out crypto transactions and who may have failed to report their income and pay the tax owed.
 
In South Africa, it seems better late than never for SARS, who are only recently engaging in their cryptocurrency compliance and enforcement project. Nevertheless, this does not mean that taxpayers should expect any leniency from SARS for incorrectly or undisclosed cryptocurrency transactions. SARS is increasingly being forced into a space where it must drop its soft gloves approach in helping taxpayers being compliant and putting up billboards about how good taxes are for the country. They now have the additional R3 billion allocated towards SARS for this purpose, and it appears that they have been given 3,000 million to go out and collect even more.
 
Full disclosure to mitigate exposure
Contrary to what many traders and investors believe, cryptocurrency can be tracked and traced with the correct expertise and resources. This may be through direct questions posed by SARS to a taxpayer in terms of an audit letter, or by way of more indirect questions (e.g., asking questions with reference to outbound money transfers by the taxpayer and withdrawals from known cryptocurrency platforms). Remember, technology does not forget and once you have clicked on even a cryptocurrency ad, your digital footprint is already there.
 
Taxpayers need to understand the tax treatment applicable to cryptocurrency trading ahead of time and take the necessary steps to ensure they are able to meet their obligations. If taxpayers have already been trading in cryptocurrency and have not given the tax consequences much thought, it may be wise to seriously start considering the regularisation of their affairs with SARS.
 
Recent changes to our tax laws in South Africa mean that SARS no longer has to prove that someone had an intention to commit a criminal tax offence. Instead, only negligence on the part of the taxpayer needs to be proved. Upon conviction, a taxpayer may be fined or sentenced to up to two years in prison and, if found to have attempted tax evasion or to obtain an undue refund, this may result in them spending up to five years in prison.
 
It is clear that cryptocurrency remains a key concern for revenue authorities and the issue will not be going away any time soon. As SARS continues to evolve its infrastructure to clamp down on non-compliance in relation to cryptocurrency, taxpayers need to be mindful of their obligations and render unto Caesar what is due or face the consequences of continued non-compliance.

ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za
 
ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.
 
For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
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Authored by: Thomas Lobban, Legal Manager for Cross-Border Taxation at Tax Consulting SA 

With South Africa and the world at large facing an economic downturn as a result of various factors, not the least of which being the Covid-19 pandemic, SARS is on a mission to plug the existing gaps in tax revenue collection and compliance.

It is no stretch of the imagination to believe that cryptocurrency must be high on the list of SARS’ compliance concerns, given how it has existed under little-to-no regulation and these transactions are often easily concealed. Indeed, cryptocurrency has been steadily increasing in its popularity as a speculative investment by South Africans and, it appears, is now squarely within SARS’ focus.

A Request by SARS
When a taxpayer files a tax return, SARS may (in many cases) send a request for verification or “audit request” in which it seeks clarification and / or supporting documentation from a taxpayer. The information sought by SARS is inevitably linked to the disclosures made by the taxpayer in that return. This is a preliminary step taken by SARS in audit proceedings, and it is crucial that a taxpayer prepare themselves accordingly for this ahead of time.

Tax Consulting South Africa has recently been approached by taxpayers who were presented with a SARS audit request. These requests posed standard questions as would be expected on the taxpayers’ returns, but also went further to request the following:

• The purpose for which the taxpayers purchased cryptocurrency; and
• A letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements.

This would have been reasonably expected by the taxpayers, if they had made any disclosure of cryptocurrency-linked trading amounts in their returns, along with the rental amounts and certain investments that were indeed disclosed to SARS. However, in this case, we had explicitly confirmed that the taxpayers had not, to their knowledge, ever effected a cryptocurrency-related transaction.

While this is certainly a first, it is certainly the kind of approach by SARS that taxpayers should expect moving forward.

Playing by the Rules
In the first instance, taxpayers should already know that it is a criminal offence where a taxpayer wilfully fails to submit a document or information as requested by SARS or makes a false statement to SARS. It is no longer material whether the taxpayer concerned had justification for such non-disclosure or false statement made.

This means that a taxpayer who fails to correctly disclose their cryptocurrency-related income or comply with an audit request by SARS to this effect may be convicted for an offence and be liable to a fine or imprisonment for up to two years.

In light of this recent change to our tax laws, it is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits and / or losses. While further cryptocurrency regulation is certainly on its way, and with the international Common Reporting Standards now in full swing, audit requests are still a primary weapon in SARS’ arsenal and the walls are closing in on non-compliant cryptocurrency traders.

So, when is SARS disclosure required? A misconception often harboured by taxpayers is that they do not owe any tax liability on their cryptocurrency-related income and do not need to make any disclosure to SARS to this effect. This is, unfortunately, not the case.

When SARS Disclosure is Required
From the outset, it should be known that all cryptocurrency transactions will bring tax consequences for a taxpayer. A tax disclosure obligation does not only arise where a cash balance is withdrawn from a trading platform – all transactions that have been made (whether a transaction of cryptocurrency for money or cryptocurrency for other cryptocurrency) must be disclosed to SARS.

Taxpayers should take the time to consider and understand the tax consequences when dealing with cryptocurrency, in order to prevent being caught off guard upon a SARS inquiry to this effect. Any taxpayer who has not disclosed cryptocurrency held or traded should immediately seek professional guidance in getting their tax affairs in order. Alternatively, where you have never bought or sold cryptocurrency previously, it is important to proceed with caution when responding to an audit request.

As has been well reported, SARS is well within their rights to compel a taxpayer to respond to an audit request. Failing to disclose any relevant amounts or respond to an audit request correctly could well result in substantial penalties or harsh criminal sanctions.

There is little doubt that SARS is pursuing non-compliant cryptocurrency traders, so it is best for these taxpayers to stay ahead of the curve and ensure that their tax affairs in order beforehand. Click here to view the SARS audit request mentioned above.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, 060 995 6277, rosa-mari@thatpoint.co.za, www.atthatpoint.co.za

ABOUT Tax Consulting SA:
Tax Consulting SA offers a streamlined service in the calculation and filing of individual income tax returns, provisional income tax returns or any other more complex individual tax relate matters. Our highly qualified team of Tax practitioners are registered with SARS under controlling body of the South African Institute of Tax Practitioners (SAIT). As tax specialists, we remove the burden from clients to keep their tax affairs in good order, achieving optimal tax savings while ensuring full compliance.

For more information on Tax Consulting please visit:
Website:  http://www.taxconsulting.co.za/
LinkedIn: Tax Consulting South Africa
Facebook:Tax Consulting South Africa