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Should you tell Sars about your crypto wins and losses? Never thought about it?
Well, there are definitely tax implications and although you might walk out of a crypto scam considering yourself a winner, the tax man will be hot on your heels.
The Mirror Trading International (MTI) scandal has been in the headlines since early 2020 with about 260 000 investors but came to a sudden end when the main kingpin, Johann Steynberg, fled the country in December 2020.
The company has now been liquidated and an application is pending to declare it an illegal scheme, which will mean that all the “winners” – people who withdrew more than they “invested” – will have to pay their “profits” back so that the liquidators can refund the “losers” who did not withdraw anything and lost their original investment.
Some of the “winners” won big with daily returns of 0.5%. Will the management and other “winners” be liable to pay tax? And the losers? Is it a good idea to involve Sars at all?
ALSO READ: MTI Bitcoin scam kingpin Clynton Marks skimmed R30m in two months
The simple answer is yes, says Ruan Stander, senior crypto tax accountant at Tax Consulting SA.
“Sars clearly stipulates that all South African residents who own crypto must disclose their crypto holdings to Sars, irrespective of whether you are a “winner” or a “loser”. This means that all the investors who participated in MTI, for example, must disclose their position to Sars.”
Investors who lost their crypto can claim their crypto losses against future profits, but those who had withdrawn more than they invested will ultimately be liable for paying tax on their profits. Stander says the challenge for MTI investors, at least for those who lost, is the evidence they need to prove this to Sars.
“We would like to remind consumers that failure to disclose any crypto holdings to Sars is a clear violation of South African tax law and they could face a fine of up to 200% of the value of the default. Two wrongs do not make a right and neither SARS nor the law care about what is fair in relation to revenue collection.”
Stander explains that claiming a loss can be the most useful measure in obtaining a preferable tax rate regarding crypto transactions, but you need a sharp understanding of the applicable laws, especially now that Sars has started auditing crypto tax disclosures.
“Simply put, you cannot choose whether to disclose your crypto profits or losses to Sars. If you decide that it is none of Sars’ business and Sars cannot find you, it is nothing less than a criminal offence. There is no statute of limitations for Sars audits, which means you will always have to look over your shoulder. If you have a tax liability, you are a tax evader.”
ALSO READ: Mirror Trading International liquidators claim R4,6 billion from 18 masterminds
According to Stander the practice has seen many taxpayers refuse to disclose their income or losses to Sars and then Tax Consulting SA had to refuse service, as it is a criminal offence and consumers who are caught will be penalised by Sars and prosecuted by the National Prosecuting Authority.
He confirms that Sars has been actively auditing this area this year and he warns that Sars is getting sharper and faster.
“This is an encouraging development and we trust that increased compliance will eventually lead to a smoother process for tax disclosure with more favourable treatment in future.”
Stander says approaching Sars before it takes the first step or starts asking questions, gives taxpayers a “first-mover advantage”, but once Sars notifies you of an impending audit, you can only comply and could face criminal sanction, as no amnesty is available at that stage.
ALSO READ: Application to declare Mirror Trading International unlawful postponed
Just as bad advice got consumers involved in crypto scams in the first place, bad advice about crypto can land them even deeper in trouble.
“Bad advice from some who may have a strong opinion about how crypto assets must be taxed but absolutely no real expertise could land consumers in hot water.”
Some of these advisors will say you only have to pay capital gains tax and not income tax, or that no tax applies. Stander says these tax advisors are negligent and should be reported to the various regulatory bodies thy belong to.
He refers to the timeless trend that many taxpayers will follow the advice of someone who gives pleasant-sounding answers, as nobody likes a “downer”, but he emphasises that tax in South Africa is not concerned with convenience, nor is it concerned with the feelings of the taxpayer.
If things go wrong, Sars will not pursue the advisor as it is a matter between Sars and the taxpayer.
“When seeking advice on your obligations from a tax perspective, it is fundamental that you speak to an advisor with a full understanding of crypto assets, how they operate and the transactions that take place, as well as the actual tax implications that follow.”
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