SARS Pursues Non-Compliant Bitcoin Traders

Cryptocurrency, such as Bitcoin, has been steadily increasing in its popularity as a speculative investment by South Africans and, it appears, is now squarely within the focus of the South African Revenue Service (SARS).

This is according to Thomas Lobban, a legal manager for Cross-Border Taxation at Tax Consulting SA, who argues that when a taxpayer files a tax return, SARS may send a request for verification or “audit request” in which it seeks clarification or supporting documentation from a taxpayer.

Lobban said the information sought by SARS is inevitably linked to the disclosures made by the taxpayer in that return.

“This is a preliminary step taken by SARS in audit proceedings, and it is crucial that a taxpayer prepare themselves accordingly for this ahead of time.”

Tax Consulting South Africa has recently been approached by taxpayers who were presented with a SARS audit request.

These requests posed standard questions as would be expected on the taxpayers’ returns, but also went further to request the following:

• The purpose for which the taxpayers purchased cryptocurrency; and
• A letter from the trading platform(s) confirming the investments and the relevant trading schedules for the period and bank statements.

“This would have been reasonably expected by the taxpayers, if they had made any disclosure of cryptocurrency-linked trading amounts in their returns, along with the rental amounts and certain investments that were indeed disclosed to SARS,” Lobban explains.

“However, in this case, we had explicitly confirmed that the taxpayers had not, to their knowledge, ever effected a cryptocurrency-related transaction.”

While this is certainly a first, it is certainly the kind of approach by SARS that taxpayers should expect moving forward.

The Tax Consulting SA noted that it is a criminal offence for a taxpayer to wilfully fail to submit data requested by SARS or to submit false information.

“It is no longer material whether the taxpayer concerned had justification for such non-disclosure or false statement made,” Lobban explains.

This means that a taxpayer who fails to correctly disclose their cryptocurrency-related income or comply with an audit request by SARS to this effect may be convicted for an offence and be liable to a fine or imprisonment for up to two years.

He said the change to our tax laws, it is feasible to understand that SARS is in the process of ensnaring culpable taxpayers who have not disclosed their cryptocurrency-related trading profits or losses. “While further cryptocurrency regulation is certainly on its way, and with the international Common Reporting Standards now in full swing, audit requests are still a primary weapon in SARS’ arsenal and the walls are closing in on non-compliant cryptocurrency traders.”

Lobban said all cryptocurrency transactions will bring tax consequences for a taxpayer. “A tax disclosure obligation does not only arise where a cash balance is withdrawn from a trading platform – all transactions that have been made (whether a transaction of cryptocurrency for money or cryptocurrency for other cryptocurrency) must be disclosed to SARS.”

The organisation said taxpayers should take the time to consider and understand the tax consequences when dealing with cryptocurrency, in order to prevent being caught off guard upon a SARS inquiry to this effect.

“Any taxpayer who has not disclosed cryptocurrency held or traded should immediately seek professional guidance in getting their tax affairs in order. Alternatively, where you have never bought or sold cryptocurrency previously, it is important to proceed with caution when responding to an audit request,” said Lobban.

“As has been well reported, SARS is well within their rights to compel a taxpayer to respond to an audit request. Failing to disclose any relevant amounts or respond to an audit request correctly could well result in substantial penalties or harsh criminal sanctions.”