Capital Gains Tax
What Are Capital Gains?
Capital gains are the backbone of long-term crypto asset investment, with tax arising when crypto asset disposals are made. Capital gains tax will, however, only be applicable in limited circumstances, based on the nature of the gains made as well as the intention and conduct of the crypto investor.
However, there is good news, as individuals are granted an R40,000 annual capital gains allowance (2023 Year of Assessment) and are only required to pay income tax on, effectively, 40% of any capital gains made through crypto assets of a capital nature. On top of this, capital losses also occur when a loss is made on a disposal, which can be offset against subsequent crypto-gains.
Example:
Ben bought 1 Ethereum for R5,000, with a plan to hold it for at least two years. R5,000 is now his ‘base cost’.
After one year, Ben sold his Ethereum for R10,000.
Ben has made a capital gain of R5,000. (R10,000 - 5,000)
We recommend you speak to a qualified professional tax advisor to discuss your potential capital gains tax liability. The burden would be on the taxpayer to prove that their crypto assets are capital in nature.
Which transactions are capital in nature?
It can not be assumed that a specific transaction type should be treated for capital gains. Qualification of assets as being capital in nature does not follow any mechanical process and depends on whether the asset/amount was intended to be for long-term investment.
How to Know The DifferenceCapital Losses
Capital losses are inversed capital gains, occurring when a loss is made on a disposal.
SARS acknowledges all crypto capital losses, allowing them to offset any other capital gains made if the losses were in respect of the disposal of crypto assets held as capital.
Furthermore, capital losses you make investing in cryptocurrencies can be brought forward multiple years, but you cannot “skip” a year when claiming losses – these must be claimed each year until the loss has been fully offset in the subsequent years.
Before implementing any tax strategies, each crypto investor should understand whether they will be classified as investors or traders by SARS with respect to each transaction type and / or each crypto asset concerned. There is no ‘catch-all’ determination for this.
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