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SARS Issues Warning to Taxpayers That Haven’t Disclosed Crypto Earnings

SARS Issues Warning to Taxpayers That Haven't Disclosed Crypto Earnings

There’s been a distinct shortage of good news across the world’s economic markets over recent months. However, as has been seen in so many business sectors of late, it seems that operating in cyberspace provides the best opportunity to buck the trend. That’s certainly been the case with the crypto market, which has been posting one record after another in the first half of March. Total crypto inflows hit an unprecedented $4.2 billion, while Bitcoin itself was briefly trading above $60,000 on March 15.

It’s no surprise that interest in crypto is enjoying wider appeal than ever. But South African taxpayers have been issued with a stark warning – declare your crypto interests or face the consequences.

Crypto audits on the increase

The South African Revenue Service (SARS) has sent audit requests to an unspecified number of taxpayers, requesting full disclosure of their crypto earnings. This requires them to provide a full explanation for any purchase of digital currency, payments received in crypto, or digital revenue otherwise generated.

Tax consultants in South Africa are facing unprecedented inquiries from concerned clients on the topic of crypto disclosure, and their advice will provide scant reassurance. The experts at Tax Consulting South Africa told local media that they would advise anyone who has undisclosed crypto earnings to seek legal counsel as a matter of urgency. They went on to say that non-disclosure could lead to fines or even a two-year custodial sentence.

Yet for all its headline-grabbing credentials, there are many who still struggle to conceptualize exactly how people go about generating income from digital currency. Let’s explore some of the most common methods.

Trading or HODLing

Buy low and sell high. It’s the basic tenet of successfully trading anything, from property to antiques to forex, and the crypto trading market is no different. This is, in fact, the most common way of generating real profits out of cryptocurrency, and the buoyancy of the market has only served to tempt more people into the murky waters of crypto trading.

In particular, there has been a spike in the HODLing world. This is a typo-turned-acronym, which has come to mean “hang on for dear life.” It’s a dangerous strategy, as every rise must ultimately end in a fall, but it has certainly served its advocates well over the opening months of 2021. HODLing has never been more profitable, but those profits need to be disclosed.

Gambling to win

The online casino industry is another example of one of those sectors that have thrived like never before over recent months, while its land-based counterparts have experienced one of the toughest years on record. There is an undeniable elegance to using digital money for your digital gambling, so it is unsurprising that Bitcoin casinos have become an increasingly common sight in cyberspace over the past year or two.

Transaction speed, security and anonymity are all factors that play in Bitcoin’s favor and make it a popular choice, especially among the more serious gamblers and the high-rollers. Nevertheless, it is important to remember that gambling with crypto doesn’t free you from paying taxes, and if you are lucky enough to win big on the slots or at the poker table, that income needs to be reported accordingly.

Mining

In the early days of Bitcoin, crypto mining was a great money-spinner and it provided an opportunity for those early adopters to become fabulously wealthy. Put simply, it involves competing with other miners to solve increasingly complex mathematical algorithms and thereby generate coins on a reward basis.

Of course, as more people joined this digital gold rush, the potential rewards diminished, but today, there is still profitability in Bitcoin mining, provided you have the necessary skills and some serious processing firepower at your disposal.

Investing in ICOs

There are somewhere in the region of 4,000 cryptocurrencies in existence. Some gather momentum and become appreciating virtual assets, while many others fail to take off. What they all have in common, though, is that they launch with an initial coin offering or ICO, where investors can purchase an interest in the new cryptocurrency on the ground floor.

We’ve all seen how that turned out for the Bitcoin billionaires, and for those who bought into the likes of Ethereum and Litecoin early doors. However, all those earnings need to be reported appropriately for tax purposes.

New money, same old taxes

We might not be using cryptocurrency to buy groceries or pay for cups of coffee in the way that the Bitcoin pioneers predicted, but crypto is nevertheless having a significant impact on the financial world. There are those in the tax sector who feel that reform is necessary to properly account for digital wealth in an equitable way. Until such time as that happens, however, the best advice is to take heed of the SARS warning and to maintain a policy of complete disclosure.

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