Selling Crypto for Fiat
Buying crypto assets with fiat currency is not taxable, however disposing of your crypto into fiat is.
Disposing into fiat currency is a direct disposal, where either a gain or loss can be made. This means that a taxable event will occur, regardless of whether or not you have subsequently withdrawn the fiat from the exchange. The important distinction then, as always, is whether the crypto asset was a capital or revenue-generating asset.
If the crypto asset was correctly considered to be capital in nature, only 40% of the crypto capital gain can be taxed in South Africa, reducing the effective tax rate down to a maximum of 18% for an individual taxpayer.
If you are looking to save on taxes, it's important that you will need to be seen by SARS as investing in each crypto asset, not trading, which often means potentially holding your crypto assets for extended periods of time.
As SARS has clearly stated, crypto assets are treated as assets and not currencies, meaning a capital gain or revenue profit can occur, if the proceeds exceed the cost of acquisition, of such crypto asset.
By using FIFO, an investor can calculate their cost basis, inclusive of trading expenses, to find their total gain or loss.
Henceforth, two unique scenarios appear:
- Selling your crypto assets for a gain = capital proceeds, or revenue profit
- Selling your crypto assets for a loss = capital loss, or trading loss
Individual investors, and special trusts, do benefit from an annual capital gains exclusion of R40,000. This will apply only if your crypto holdings are capital in nature. This allowance does not apply to profits / gains derived from the trading of crypto assets.
The first R100 000 of the donation is however exempt, for the donor being a natural person.
In the case of a taxpayer who is not a natural person, the exempt donations are limited to casual gifts not exceeding R10 000 per annum in total. Dispositions between spouses, South African group companies and donations to certain public benefit organisations, are exempt from donations tax.
Princess has been actively trading and wants to realize some of her profits. Instead of trading into stablecoins, she wants to trade directly into Rand.
Princess bought a total of R80,000 Bitcoin last year; R40,000 when Bitcoin was valued at R300k and another R40,000 when Bitcoin was valued at R400K.
Always Remember: SARS requires the usage of FIFO to calculate your cost basis and subsequent gains.
After holding for six months, Princess had unrealized gains of R80,000, valuing her Bitcoin at R160k. She decided to sell it all.
Due to FIFO, the remaining gain is calculated in two ways:
- 1.The first R40,000 saw a gain of R50,000
- 2.The second R40,000 saw a gain of R30,000
After her annual allowance is considered, Princess' gain reduced from R80K to R40K, of which all will be fully taxed as we assume SARS views Princess as a trader.
The gain of R40,000 is taxed at 18%, leaving her R7,200 left to pay in income taxes.
Recap automatically completes FIFO calculations on all trades. Our market leading tax platform calculates crypto tax liabilities for South African crypto investors, using the SARS requested FIFO cost basis method.
Recap supports all major crypto-exchanges to make getting your transaction data into our platform simple. We also support data from dead exchanges or anywhere else via CSV file. We take your security and privacy very seriously and use end-to-end encryption to protect your data
Recap shows you errors and gaps in your data so you can easily get things in order. We apply automated valuations, tax clarifications and use FIFO to calculate your tax position. If needed you can manually add trades, adjust clarifications and tweak your data so you're happy.
See your tax position and download your tax forms ready to file with SARS. If you need a hand our team are available in our in-app chat to answer your queries and we work closely with local crypto-tax experts if you need professional advice.