The South African Revenue Service (Sars) has issued a clear warning to crypto asset holders and traders: compliance is the path of least resistance, while non-compliance could lead to heavy financial and legal consequences. With over 5.8-million South Africans now holding crypto assets and Southern Africa witnessing one of the highest uptakes of crypto assets globally, Sars has made it a priority to ensure accurate and complete tax declarations from those holding crypto.

The recent notification which taxpayers have received regarding crypto asset trading activities underlines that Sars has received transaction data from crypto exchanges, revealing undeclared trades by taxpayers who may have omitted to correctly report these on their tax returns:

Data-Sharing Initiatives in Place to Detect Non-Disclosure

Sars is actively collaborating with both local and global platforms to identify crypto traders and investors who fail to disclose crypto-related profits. The agency’s collaboration with the Financial Sector Conduct Authority (FSCA) and local crypto exchanges allows it to track registered Crypto Asset Service Providers (CASPs) and obtain transaction details for South African taxpayers. 

Crypto Transactions: What You Need to Know

According to Sars, crypto transactions are subject to tax whether they involve trading, or constitute disposals of investment assets. For traders, crypto profits are typically regarded as taxable income, while those holding crypto for investment are liable for Capital Gains Tax (CGT) on gains exceeding the annual CGT allowance. Sars’ Commissioner, Mr. Edward Kieswetter, emphasised that the agency is committed to making compliance straightforward and cost-efficient, but will be "hard and costly" on those who choose to evade their obligations.

Failing to declare crypto gains or income could lead to severe consequences, including penalties, interest, and potential criminal sanctions.

Voluntary Disclosure Programme (VDP): A Path to Compliance

To help taxpayers regularize their crypto disclosures, Sars recommends the Voluntary Disclosure Programme (VDP), a mechanism for individuals to correct past omissions without penalties (except for cases involving gross negligence or intentional tax evasion). However, eligibility for the VDP depends on approaching Sars before an audit is initiated. Taxpayers should consult experienced tax attorneys to ensure their applications meet the rigorous standards of the Tax Administration Act, as this could reduce procedural risks:

Swift Action Required: 21-Day Deadline for Reporting

Taxpayers are urged to declare any previously undisclosed crypto income or gains within 21 days of receiving a Sars notification. If not, Sars may initiate an audit, and impose penalties, interest, and potentially more severe actions. Mr. Kieswetter warns that "Sars will pursue all without fear, favour or prejudice," underscoring Sars’ intent to use technology, artificial intelligence, and data algorithms to identify and pursue cases of non-compliance across all platforms.

With Sars’ enhanced enforcement measures and a broad data-sharing network, this serves as a wake-up call to crypto traders and investors. Proactive compliance through full disclosure is no longer optional; it’s essential.

Written by Tax Consulting SA