Purchases Using Crypto
More and more opportunities to purchase goods and services with crypto are appearing, with some home builders even offering houses for sale in Bitcoin.
When a service or product is bought with cryptocurrency, the crypto assets are considered to be disposed of, at their current market value.
Cryptocurrency cards, such as Crypto.com's VISA card, use fiat funds and only reward users in cryptocurrency. No disposals occur.
Difficulties occur when considering SARS cost basis method of FIFO (First in First Out), as purchases with crypto assets are often small and frequent.
SARS has stated that FIFO is used for crypto calculations, making purchases with cryptocurrency akin to selling crypto for fiat, or other crypto assets.
Michael recently bought a weekend vacation for himself and his girlfriend. The travel company allowed him to pay through Bitcoin.
Having spare Bitcoin, Michael thought it would be a good idea and went ahead.
Michael bought Bitcoin twice in the last year:
- R10,000 worth in January priced at R400,000
- R25,000 worth in March, priced at R500,000.
Remember: SARS uses a First in First out policy for an assets cost basis. Here's how:
The weekend trip cost him R15,000 in total. As he bought the trip with crypto, the R15,000 worth of Bitcoin was considered a disposal. (One Bitcoin is currently valued at R600,000)
Using FIFO, Michael must negotiate two cost basis':
- First R10,000 worth was bought when Bitcoins price was R400,000, making a gain of R5,000 (R10,000 * 50%).
- Second R5,000 bought at a Bitcoin price of R500,000, reducing his gain to 20% or R1,000 (R5,000 * 20%)
Michael's total gain was R6,000, of which only 40% of it can be taxed. (R2,400)
Total Payable: R432 (R2,400 * 18%)