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Capital Gains Tax and the sale of Bitcoin

Capital Gains Tax was introduced on 1 October 2001. It forms part of normal income tax and is based on the sliding tax tables for individuals. Capital gains is based on the concept of disposal. Events that trigger a disposal include a sale, donation, exchange, loss, death and emigration.  It comes about most often for taxpayers when their home or investment property is sold for a profit (gain) i.e. the proceeds/selling price is more than the “base cost”. The “base cost” is the purchase price plus any amounts spent on renovations or improvements, plus a few other smaller costs.

This profit (or capital gain) is taxed at a lower rate than normal income – because only a portion of the capital gain (currently 40%) is included in taxable income, and not the full profit. So, selling your investment is not taxed at the same rate as money you earn from your salary, thank goodness!

SARS has issued guidance stating that Bitcoin must be treated as a normal share trade. So, if you’re trading it for revenue purposes then the gains and losses will be treated as a revenue transaction and taxed like a salary. You would need to include the gains/losses in the Local Business section of your tax return. If you hold it for investment purposes however, (i.e for a period of 3-5 years) then this would be treated as if it were a normal capital gain on sale. Essentially, if you want to hold bitcoin as a long-term investment and you don’t buy and sell frequently, then this would be seen as capital not revenue.

It’s important to know that Capital Gains Tax doesn’t apply when you sell personal use assets. So, there’s no need to declare the details of your recent car sale or washing machine to the tax man!

If you would like to know more about capital gains tax, please visit our website: www.alertsprofessionalservices.co.za