To explicitly target cryptocurrency trading and investment both domestically and internationally, the South African Revenue Service (SARS) has set up a specialized cryptocurrency unit.
The unit’s scope is essentially limitless, and SARS has verified that it can obtain information straight from regional crypto-asset exchanges to make non-compliance difficult and expensive for taxpayers.
The reach goes beyond cryptocurrency transactions, claim tax professionals at Tax Consulting SA. The range of SARS’ non-compliance radar is greatly expanded by international collaboration and automated information sharing.
“SARS’ jurisdiction over a taxpayer’s legal duty to account for any income or assets is a worldwide phenomenon, regardless of whether your cryptocurrency assets are held and disposed of locally or offshore,” they stated.
According to Tax Consulting, the SARS crypto team is made up of highly skilled individuals with specialized knowledge.
The unit has the authority to detect non-compliance at all levels, do thorough audits, and open historical tax periods.
“This covers everything from a routine check to situations where taxpayers have actually lost money on their cryptocurrency activities to severe situations where SARS reclassifies proceeds from cryptocurrency sales from capital gains to income.”
According to the tax specialists, the recategorization powers might have a startling effect on a tax bill and are not widely known.
Depending on the marginal tax rate of each individual taxpayer, this procedure may raise the tax rate from the current 18% capital gains tax rate for people to as high as 45%.
“For cryptocurrency holders, this reclassification may lead to increased tax obligations, which could wipe out a sizable amount of their gains,” the experts stated.
However, they claimed that the burden of proof is the true horror.
It is nearly impossible for taxpayers to persuade SARS that their cryptocurrency holdings are capital in nature without thorough documentation, legal arguments, and potentially an expensive conflict with SARS.
“Many may find themselves at the mercy of SARS’ interpretation, with little room to push back, in the absence of clear-cut guidelines on what constitutes.”
SARS is spreading rapidly.
According to Tax Consulting, cryptocurrency holders are already receiving Notices of Audit and Requests for Relevant Material from SARS.
Given the unit’s broad authority, it further stated that individuals who currently own or have previously owned cryptocurrency should not presume that SARS will not attempt to tax these gains in the future due to past non-declaration.
They stated that in addition to reviewing past violations, “severe penalties or even jail time is immediately on the cards should the crypto trader under the radar not comply.”
Additionally, since SARS is already aware, cryptocurrency traders shouldn’t presume that notices asking for information are for data collection.
Tax Consulting stated that although taxpayers are asked to fully disclose all local and international cryptocurrency transactions to SARS, this is primarily done for verification rather than data collection.
Although SARS has given non-compliant cryptocurrency traders the opportunity to participate in the Voluntary Disclosure Programme (VDP), it is expected to keep focusing on these taxpayers in the years to come.
Another caution to taxpayers is that when it comes to collecting its dues, SARS gives very little opportunity for deception.
Recent court rulings have demonstrated that, in the event that a tax obligation is due, the tax collector has complete authority and the ability to take money straight out of bank accounts.
Without the account holder’s consent, SARS may direct a bank to close its accounts and settle a tax liability owed under the tax rules.
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