31 October 2021
NEWS & OPINION
SA issues guidance on crypto asset tax BY THOMAS LOBBAN Legal Manager: Crypto Asset Taxation, Tax Consulting SA
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owards the end of August this year, SARS provided further guidance on the correct tax treatment of crypto assets and how they must be declared in tax returns. This took place in the form of a webpage published by the country’s revenue service, entitled Crypto Assets & Tax. The publication should perhaps best be seen in context of the various comments made by SARS recently on the taxation of crypto assets, the perceived non-compliance by crypto-asset holders, and how serious SARS is taking non-compliance. A common misconception is that where you have simply held crypto assets, but have not made any trades, you do not have to make any disclosure to SARS. The 2020/21 tax return requires that you must make a specific disclosure under the Statement of Local Assets and Liabilities section. The consequence hereof is that all individuals who have acquired and held crypto assets during the tax year must disclose these holdings to SARS in their returns, regardless of whether any taxable events took place. This is easy to get wrong and taxpayers should be sure to tread carefully. Where you do not make this disclosure, even negligently, is now a criminal offence under the Tax Administration Act.
In countries where income tax and capital gains tax are subject to the same rate, the nature of trading vs investment is not important. In South Africa, the top marginal personal income tax rate is 45% and the top marginal capital gains tax rate is 18%; therefore a point of great significance. In SARS’ CGT Guide (issued 5 November 2020), it was mentioned that “[g]iven their extreme volatility, cryptocurrencies are likely to be held as a speculative asset of a revenue nature”. This is probably generally true, but not always the case. Despite this, the webpage information published recently only gives examples of capital gains tax disclosures. There are no examples given of income tax disclosure, which means taxpayers may fall on the wrong side of the law by just following the guidance provided by SARS. The new publication provides no specific examples or guidelines on how this differentiation between revenue and capital is to be established. The statement is made that the answer will come from existing jurisprudence. This does not mean much, if anything, to a normal individual taxpayer. Despite popular belief, the determination of revenue vs capital is not merely a function of the length of time for which the asset is held – one must consider various factors, including the taxpayer’s intention. Court judgments have confirmed that there is no single test to be applied.
For example, in ITC 1525 (1991) 54 SATC 209 (C), the taxpayer held Krugerrands for a period of 12 years (for a rainy day), and eventually sold them in order to inject capital into a new business. The Tax Court found that this was subject to tax on revenue and not CGT. This was similarly the case in ITC 1526 (1991) 54 SATC 216 (T), where Krugerrands were held for up to nine years as a store of wealth and protection from inflation.
“There is no legitimate way for crypto asset investors to remain ‘invisible’ from a SARS perspective” There is no legitimate way for crypto-asset investors to remain ‘invisible’ from a SARS perspective and, while many may still be in denial of this, SARS will keep on getting sharper. Even where people fail to disclose correctly now, the non-disclosure is permanent and will come back in a few years to catch up with the taxpayer. SARS has appointed specialists to deal with crypto assets, yet the market has not seen any prosecutions in this area of tax. One thing is absolutely certain, however – it is no longer enough to hide in plain sight. Crypto asset holdings (not just gains and losses) must now be declared in your returns, and we will soon start seeing the wheels of justice turn quickly for those who are slow on the uptake.
Fit And Proper competency check – Class of Business Exams BY CATHERINE COOPER Regional Director, Compli-Serve KZN
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he Financial Services industry seems to have come to grips with the Fit and Proper Continuous Professional Development (CPD) requirements of BN 194 of 2017 and FAIS Notice 86 of 2018, but the same cannot be said for the Class of Business (COB) requirements of these same Notices. As we are already well into the new CPD cycle, commencing 1 June this year, it’s essential to get to grips with what is required, and soon. COBs are one of the four current pillars of competency relevant to any new representative (rep) of an FSP employed after 1 April 2018, or to an existing rep in respect of any additional license categories. COBs must be completed within a year of that rep’s Date of First Appointment (DOFA) or within a year of the DOFA of the relevant license category. It is crucial to note that COB competency requirements will only
be met if they are provided by an accredited training provider (i.e. one registered with INSETA, for example). But there is currently confusion as some training providers are offering CPDs on the subject matter of COB training, and it is important to note that in such instances, you will only be provided with CPD hours, but not be meeting the COB requirements of Fit
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and Proper CPDs. Confusion can arise and it’s important to keep an eye out that your reps are staying on top of their compliance requirements. If you aren’t sure whether the CPD certificate you are assessing meets the CPD requirements of the abovementioned notices, here is what to watch out for. As a rule of thumb, the following must appear on the CPD certificate: • Verification by a professional body as evidenced by their stamp (for example INSETA, the FPI or SAICA, to name a few) • The full name and ID of the rep • The number of hours that are granted for attendance of the seminar or the test written • The date of the seminar or test. If you are still unsure about it being either a CPD or COB certificate, you need to do further checks, such as ensuring you obtain proof of training via a registered external accredited training provider.
“FSPs have a duty to debar reps that fail to meet any Fit and Proper competency requirements” FSPs have a duty to debar reps that fail to meet any Fit and Proper competency requirements. It’s a risk to your business otherwise, particularly if any complaints arise against a rep that was not Fit and Proper at the time of giving the advice, as there would be severe ramifications for the FSP in this case. Working within the rules of compliance with Fit and Proper is always the best way for your business. As there are many aspects to keep in mind and easy ways to get confused, it may be a good idea to seek external compliance support to assist.
