# Mining

![](https://1369014650-files.gitbook.io/~/files/v0/b/gitbook-x-prod.appspot.com/o/spaces%2FwDn56IBmTGJCP7opAx1T%2Fuploads%2FkVC0vmBe7y98ARIk27mK%2FSouth%20African%20Crypto%20Tax%20-%20Mining.png?alt=media\&token=5c6eee97-dcc7-4a84-b552-018615cb85b3)

## What Is Mining (PoW)

Mining or Proof-of-Work is the original consensus mechanism for blockchains, being used to validate transactions on a blockchain through the use of miners computing power. Miners are then *rewarded* through the blockchains native token of which transactions they are validating. 

{% hint style="success" %}
**For Example:** Bitcoin *miners* receive bitcoin as a reward for each block they validate.
{% endhint %}

Miners can be seen as providing a service, validating a blockchain, in return for cryptocurrency, which SARS will likely view as income. Unlike other income-generating protocols in the crypto-sphere, miners have [*business expenses*](https://www.sars.gov.za/wp-content/uploads/Docs/Legal/Crypto-FAQs-reviewed-23-June-2021.pdf) relating to mining which they can use to offset any gains made.

{% hint style="info" %}
Mining profitability is about balancing energy fees with block rewards.
{% endhint %}

### Tax Treatment

With next to no official advice from SARS, the tax treatment of mining cryptocurrency falls into two brackets:

* Income tax when receiving the *rewarded* cryptocurrency
* Capital gains tax on any gains made on disposals

### Example

Lewis has been mining Bitcoin for the entire tax year, making a total of R50,000 in rewards. Having held the Bitcoin for the whole year, the crypto assets have **appreciated** to R75,000.

Firstly, Lewis will **likely** owe tax on the full R50,000 he received as his mining reward, seen as a *trader* by SARS.

Secondly, Lewis will pay tax on 40% of the entire R25,000 capital gain. He has none of his R40,000 personal allowance left to offset the gain.

**Therefore:** 

{% hint style="info" %}
Lewis incurred *business expenses* through mining which amounted to R5,000.
{% endhint %}

Lewis owes R8,100 in income tax: (R50,000-R5,000 \* 18%)

Lewis also owes R1,800 for his capital gain: (R25,000 \* 40% \* 18%)

In total, Lewis owes a total of **R9,900** in tax.