As the use of digital currencies grows rapidly in South Africa, the South African Revenue Service (SARS) has issued a significant warning to all taxpayers, especially those involved in crypto assets. With over 5.8 million South Africans now holding some form of cryptocurrency, SARS is actively working to ensure these assets are properly declared for tax purposes. If you are a business accountant, tax practitioner, or crypto investor, here's what you need to know about this new compliance push.

Why is SARS Focusing on Crypto Assets?

SARS has recognised that crypto assets, like Bitcoin, have become increasingly popular among South Africans. Southern Africa now boasts one of the highest uptakes of Bitcoin globally. However, many taxpayers are not reporting their crypto holdings or trading activities in their tax returns, which is a legal requirement.

The revenue authority is concerned about this non-compliance and is actively seeking to ensure that all income or assets, including crypto, are accounted for by taxpayers. SARS has already started using advanced technology such as artificial intelligence and machine learning to identify taxpayers who might not be fully disclosing their crypto dealings.

Crypto Assets Now in Compliance Programs

In its efforts to clamp down on non-compliance, SARS has included crypto assets in its compliance programs. This means that anyone involved in buying, selling, or holding cryptocurrencies must ensure they report this information accurately on their tax returns. Failure to do so could result in significant penalties.

SARS is working closely with the Financial Sector Conduct Authority (FSCA) and has access to information from local crypto exchanges. This allows them to track the holdings and transactions of taxpayers in South Africa. Moreover, SARS is also receiving information from international tax authorities, further tightening the net on those attempting to hide crypto activities offshore.

Voluntary Disclosure Programme (VDP): A Way to Come Clean

For taxpayers who may not have previously declared their crypto holdings, SARS offers the Voluntary Disclosure Programme (VDP). This program allows taxpayers to come forward voluntarily and disclose any past non-compliance, including failure to report crypto assets, without facing severe penalties.

However, there’s a catch. You must approach SARS first. If SARS identifies you for an audit before you apply for VDP, you will not be eligible for this program. It’s important to act fast if you believe you have not been fully compliant with your crypto tax obligations.

Severe Penalties for Non-Compliance

SARS Commissioner Edward Kieswetter has made it clear that those who evade their tax responsibilities are placing an unfair burden on compliant taxpayers and limiting the government’s ability to provide essential services. SARS is taking a strong stance and will pursue non-compliant taxpayers using its enhanced technological capabilities.

If you fail to declare your crypto assets or related activities, you could face severe penalties, including the possibility of jail time, as outlined in the Tax Administration Act. Tax experts warn that even if you haven’t converted your crypto into regular currency (fiat), any gains or benefits from holding crypto must still be declared and taxed accordingly.

What Should CIBA Members and Tax Practitioners Do?

For business accountants and tax practitioners serving clients with crypto assets, it's vital to advise them on the importance of full disclosure to SARS. Here are a few key steps you can take:

1. Educate Clients: Ensure your clients understand that all crypto assets and related income must be declared, even if the profits are not yet realised in fiat currency.

2. Review Past Tax Returns: If your clients have not declared their crypto activities in previous tax years, consider applying for the VDP to regularise their tax status.

3. Stay Updated: Keep up with any new developments regarding crypto asset taxation and compliance, as SARS is likely to intensify its focus in this area.

4. Consult Early: Encourage clients to approach you or other tax professionals for advice before SARS flags them for an audit. Once an audit begins, their options for voluntary disclosure may be limited.

Conclusion

SARS is making it clear that non-compliance when it comes to crypto assets will not be tolerated. For CIBA members, tax practitioners, and business accountants, it’s crucial to ensure that your clients are fully compliant and aware of their tax obligations concerning crypto assets. Failing to do so could result in hefty fines, penalties, and even imprisonment.

By staying informed and proactive, you can help your clients avoid unnecessary trouble and ensure that they fulfill their legal obligations under the South African tax system.