ITC 1789 sounds like a particularly boring code for something equally boring like an Income Tax Ruling. And, yes, while you’d be right, the point, however, is that it sets a legal precedent for something that is quite interesting: in the facts of this case, a taxpayer was running an illegal pyramid scheme, the receipts of which were, the Court found, taxable.

This is a case I use to wow anyone who stays attentive after the words “interesting tax case” and, recently, the issue of what is taxable and what isn’t has become a bit of a hot topic. I have found myself to be mildly more popular…at least until the conclusion of the conversation.

So, where do we stand with cryptocurrencies?

Well, we don’t have to look very far, because the Income Tax Act gives us some pretty straightforward guidance:

Gross income can be “…in cash or otherwise, received or accrued to…” the taxpayer.

It’s the “otherwise” that is interesting.

Next, we can look at Capital Gains Tax, where an asset is “…movable or immovable, corporeal or incorporeal, excluding currency…”

Now we are getting into an even more pertinent area!

Let’s go back to basics briefly:

Income that is taxable falls, broadly, into the categories of Capital or Income. The definitions relating to these two terms are set out in case law, and often require a bit of application. A person who creates crypto through mining will be seen as conducting a trade; the sale of the crypto will be seen as taxable income A person who buys and sells will likely be seen as trading in stock if that stock is bought and sold for trading…awfully redundant, but – to SARS’ benefit – awfully broad. If it’s held as an asset to generate capital, it will likely be seen as attracting Capital Gains Tax.



Hang on a second, though, because there was an interesting word a little higher up: “currency”.

Surely, cryptocurrency must be this, due to the very fact that it has the word in its name? Case closed, then!

Not quite:

The Income Tax Act does not define currency, but does note that trading in foreign currency would fall into Section 24I as this is an exchange item.

Cryptocurrency certainly isn’t a local currency because that has been clearly defined as the Rand.

It should be noted that S24I allows losses to be included, whereas the Capital Losses as defined in the Eighth Schedule only allow it up until it nets off with Capital Gains.

Could we then conclude that cryptocurrency’s gains and losses will be included in a taxpayer’s income under the ambit of S24I?

SARS has been silent on this issue, but there is certainly enough evidence to suggest so. An alternative view is that crypto can be seen as property as defined in the Capital Gains section of the Act, and recently rulings by the IRS of USA have taken this stance.

Yet another view is that miners who create crypto are conducting a trade; the sales and cost of sales will be treated as a normal business.

In all this confusion and technicalities there does emerge one overwhelming conclusion:

You are required to declare your gains and losses that you’ve earned through trading in crypto in your Tax returns.

How you get taxed on it will be determined by case law, and I would not imagine that it would take SARS much longer to get around to sending out a binding ruling on this.

Now, perhaps, it is a little clearer why I am less popular at the end of these conversations than at the start…