Investor or Trader?
SARS views crypto transactions in one of two categories, capital or income (revenue). Therefore, crypto investors may be treated as either Traders (taxed on revenue income) or Investors (taxed on capital gains). However, it is important to note that this classification must be determined on a case-by-case basis and different classifications may apply to different crypto transactions that are made by a taxpayer during the tax year.
Traders are viewed as short-term investors, looking to actively trade in the market for a profit. Crypto asset traders will generally frequently trade tokens and engage in a lot of swing-trading, or dispose of crypto when opportunities arise to make a profit. In this case, the crypto assets are treated the same as ‘trading stock’ for tax purposes.
Hence, SARS has declared that those seen as traders will be taxed differently than investors:
- Taxed on your entire crypto profits, at the normal tax rates applicable depending on your income band.
- No Annual R40,000 allowance.
On the other hand, crypto asset investors are generally seen as longer-term holders of tokens with the expectation of long-term growth. In certain cases, this may include crypto assets that are held for the purpose of making other profits (for example, crypto assets held to earn staking rewards).
There are massive differences in the way gains are taxed when you are perceived as an investor, not a trader:
- Annual allowance of R40,000.
- You are only taxed on 40% of any gain after annual allowance.