# Airdrops

![](https://1369014650-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwDn56IBmTGJCP7opAx1T%2Fuploads%2FCpyCR5qgiv3kp3elVUll%2FSouth%20African%20Crypto%20Tax%20-%20Airdrops.png?alt=media\&token=47f4033e-2f82-42df-a0ec-65c176fc5829)

## What Are Airdrops

Airdrops are rewards or gifts from cryptocurrency projects for your loyalty, service or simply owning a particular crypto asset.

They often come in the form of a new project's token, looking for 'free' publicity and promotion, hoping those who received the airdrop hold onto them for greater rewards in the future. 

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The value of airdropped tokens can vary wildly, so understanding proper tax treatment is essential.
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A recent airdropped token, $APE, saw some OpenSea users receive airdropped tokens worth over $100,000.
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### Tax Treatment

Without clear guidance from SARS, airdrops can be interpreted to have two distinct tax events:

1. ***Income Tax***: Tax paid on the market value of the airdropped tokens on the date received. 
2. ***Capital*** ***Gains**:* When the airdropped tokens are disposed of.

Based on the two rules above, it is likely SARS will incorporate both to maximize tax revenue, as many other nations already have.

### Example

David has held token X for six months, making him eligible for the recently announced *token Y airdrop,* worth R16,000. 

David has received R16,000 worth of 'value' without disposing of token X, which is likely to be classed by SARS as **taxable income**. 

David chooses to hold *token Y* as he believes it is currently undervalued. After it reaches a value of R20,000, David decides to sell all of his Y *tokens.*

David is in the lowest income tax bracket, so he will pay 18% tax on the initial airdropped income of R16,000.

* 16,000 \* 18% = R2,880

David has also made a capital gain of R4,000, as his cost basis was R16,000.  However, David is seen as an individual investor, so he is granted an R40,000 annual allowance. 

David will pay no capital gains tax. 

\[Image showing airdrop example]

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Without his annual exemption, David would pay 18% on only 40% of his capital gain, R1,600, leaving him with a tax liability of R288 + R2,880.
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