The South African tax authority has proposed modern rules to clarify how crypto assets are taxed under the existing income and capital gains tax framework.

South African Revenue Service (SARS) on Wednesday published draft guidance on the taxation of crypto assets, applying South Africa’s existing tax framework, primarily the Income Tax Act 1962, together with capital gains tax provisions.

The bill provides that most cryptocurrency-related activities, including trading, swaps and spending, are generally treated as sales that may trigger taxable events. It continues to emphasize that these rules depend largely on each taxpayer’s specific situation.

If adopted, the proposed guidelines will impact millions of local users like SARS reported in 2024, at least 5.8 million inhabitants owned crypto assets.

Cryptocurrencies treated as assets, not currency

The conductivity the document reiterates that crypto assets are not legal tender or foreign currency, but rather theoretical assets for tax purposes.

“The preferred interpretation of the legal nature of crypto assets is that, although they are highly versatile and tradable, they are not a ‘currency’ and, consequently, not a ‘foreign currency’,” the agency said.

source: SARS

Taxpayer’s intention as a key element

The guidelines place great emphasis on the taxpayer’s intentions when determining how to tax cryptocurrencies.

According to SARS, whether a person is classified as a trader or a long-term investor depends on his or her behavior, trading frequency and purpose for holding the assets.

A fragment of the assessment of the taxpayer’s intentions in accordance with the proposed guidelines. source: SARS

“It is important to consider the taxpayer’s intention at the time of acquisition, sale and possession of an asset because a taxpayer’s intention regarding an asset may change over time,” the authority said. SARS added that this required a broad assessment of all relevant facts and circumstances.

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The guidelines also say that crypto assets may be subject to gift tax in South Africa because under tax law these assets are treated as “property” and tax rates range from 20% to 25%, depending on the value of the gift.

Public entries are open until August 31

The draft guidelines are not a final legal act and can be submitted for public comment until August 31. SARS says their aim is to provide clarity of interpretation, not to introduce modern legal obligations.

South Africa has become one of the largest cryptocurrency markets in Africa. According to Chainalytic’s October 2024 report, the country received approximately $26 billion in cryptocurrency value over the one-year period covered by the study.

Chainalytic also showed that institutional and professional-sized transactions accounted for the largest share of total value received, particularly from the end of 2023 to the first quarter of 2024, indicating a shift towards larger and more organized market activity.

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