SARS issues notice on crypto assets

Anton van Wyk
How does one remain cryptic on crypto assets? Let’s look at some important information in the summary below.

The accounting position of crypto currencies (assets)

A heavily debated topic in accounting circles in South Africa, and globally for that matter, is that of digital assets, and even more so crypto currencies. 
There are varying opinions in practice about the accounting treatment of crypto currencies, ranging from treatment in terms of IAS 38 Intangible Assets, which seems to be the most favoured option at this stage, to treatment as a financial instrument (financial asset) in terms of IAS 32 Financial Instruments: Presentation, IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosure. Lastly, the option of IAS 2 Inventories of course remains on the table for traders in such digital assets.

The challenge, of course, lies in the volatility of the fair values of such currencies, where Twitter tweets of billionaires can make such currencies lose 30% of their value in mere hours. This volatility is likely to be best reflected in a subsequent measurement model where the crypto currency is measured at fair value, with fair value changes being recognised in profit or loss of the investor entity (holder). Currently, the global consensus appears to be that crypto currencies are to be treated as intangible assets in terms of IAS 38 Intangible Assets. The problem with this classification seems to lie in the fact that subsequent measurement of intangible assets consists of only two measurement options, being at:

  • historic cost (i.e., cost price less accumulated amortisation and impairment); or
  • revalued amount (i.e., fair value less accumulated amortisation and impairment, with fair value adjustments being recognised in other comprehensive income (OCI), and not in profit or loss).

There is also a strong support movement for treating crypto currency as financial assets, using IFRS 9 to deal with their recognition and measurement. Opponents to this suggestion argue that crypto currency is not (yet) a generally accepted currency (as not all businesses accept payment in crypto currency), does not arise from a contract and the terms and conditions are still too vague for this asset to become a financial instrument. It is, of course, very evident that crypto currency is evolving and the accounting treatment of such needs to be evolve too.

The SARS notice

You probably started reading this blog entry because you wanted to know what SARS says about crypto assets, so here it is…

On 30 August 2021, the South African Revenue Service (SARS) published a notice stating that normal income tax rules must be applied to income received or accrued from crypto asset transactions.  

The notice also states that income received or accrued from these transactions must be included in gross income unless it is deemed capital in nature. Should the latter be the case, the income will be taxed as such in terms of the principles contained in the Eighth Schedule.

The notice furthermore refers to the opportunity to claim costs incurred in these transactions, provided that the expenses were incurred in the production of the taxpayer’s income and for trade purposes.

The notice actually includes screenshots of specific references on the ITR12 relating to crypto assets.  

If you would like to have a look at the SARS notice yourself, please click on the following link: