Crypto Tax and Change of Intent

[Tezzarak]

Hi, I have a question regarding taxation and hope someone who has knowledge in this space could help answer.

 

Let's say in one year I bought 100k worth of Bitcoin and then started trading with it, converting between various coins etc. Now afterwards I have a total worth of 2 million (For the sake of argument, let's say that it is confirmed that crypto to crypto transactions triggers tax events). 

 

From what I gather I will have to declare this trading profit as income tax of revenue nature to pay over (highest tax bracket - let's leave out other income for this discussion). Ok, so now I go ahead  pay/declare this amount over to SARS as revenue income of nature. 

 

Let's say following that I move all these coins to hardware wallets and my intent is now to have this as a capital investment moving forward, meaning long term if I sell (3 years?) I want any further gains to be taxed at the CGT rate. Now my question is the following : How can I document/signal this intent to SARS of moving from trading to capital investment purposes?

[Spreadsheet Ranger]

Perhaps this article might be of help: https://platinumwealth.co.za/insights/investing/cryptocurrency-and-tax/

[Tezzarak]

Perhaps this article might be of help: https://platinumwealth.co.za/insights/investing/cryptocurrency-and-tax/

 

Thanks, I have read that article - and numerous others. Still looking for an answer regarding change of intent.

[Umbral]

 

Thanks, I have read that article - and numerous others. Still looking for an answer regarding change of intent.

 

Hi Tezzarak

 

Change of intent is usually dealt with in terms of case law and there are numerous ones out there that provide some legal precedent in case a matter were to go to court.

 

Essentially, the onus is on the taxpayer to prove their intentions: what I would suggest is doing your tax returns as is, and then going through the audit process that would (likely) follow.

 

A few points though:

- firstly, SARS is going through some significant changes, so it is anyone's guess as to how the matter would be dealt with

- secondly, active trading in crypto would fall under a different section in the Income Tax where your losses are allowed to be brought in and are not limited. CGT, on the other hand, limits your losses. It is also an area of focus for increasing tax recovery (I predict an increase in CGT inclusion rate to be honest).

 

Hope this answers your queries?

[Tezzarak]

 

Essentially, the onus is on the taxpayer to prove their intentions: what I would suggest is doing your tax returns as is, and then going through the audit process that would (likely) follow.

 

 

Hi Umbral

 

Thank you for the response.

 

I agree with what you are saying, but still don't feel I have an answer to my question : Let's say I did crypto trading and then I sold 80% of my crypto and took profits. I then decide to keep the remaining 20% in my wallet and want to keep them as capital investment moving forward - so I'm not trading anymore - It states in the tax guide that that this switching from trading stock to capital stock is allowed, if you declare all profits/losses up to that point of this "switch" (change of intent) as income revenue tax (ie trading stock).

 

So let's say now I do my returns (and maybe go through the audit process) , I pay over whatever and all is said and done. Now a few years from now I sell those other 20% cryptos, but now SARS says, hey let's charge this as income revenue too. Then I say no no, from date x I was keeping this as capital investment. How do I prove this to them there was actually a change in intent from that date by myself? Do I create a document in which I state my intentions. Do I submit this document together with when I submitted my initial crypto tax submissions of trading nature?

 

Hope this clarifies my question further.