THOUGHT OF THE WEEK Is your profit on Bitcoin taxable?
With Bitcoin taking centre stage when it comes to cryptocurrencies, one cannot help but wonder how tax legislation will apply to something that governments have no control over and which exists in cyberspace.
SARS’ research department seems to suggest that when Bitcoin comes into the “real world”, it will become subject to ordinary tax rules. Therefore, when proceeds are earned on Bitcoin transactions, one should differentiate between income tax and Capital Gains Tax liability. If there is an intention of a short term investment, then the profit may be treated under the normal income tax rules. However, if Bitcoin is held as an asset for several years, then the rules relating to Capital Gains Tax will apply.
Even more uncertainty clouds the VAT treatment of cryptocurrencies when it is held as trading stock. Current opinion is that VAT will apply and that traders must levy VAT on transactions. It has been argued that SARS is unlikely to introduce a separate tax for cryptocurrency, as the income tax laws are comprehensive enough to be made applicable.
Contact our offices for more information.