12th March 2021
Recent years have seen a marked increase in interest in Cryptocurrencies (otherwise known as crypto, or virtual currencies). Popular virtual currencies such as bitcoin, have seen a surge in valuation, which has in turn heightened interest as people seek to get in on the action, or observe from the sidelines.
However, there has not been much discussion on the tax implications of transacting with virtual currencies. Targeted particularly at the Africa region, our member firm in Tanzania, Cassian & Associates, has prepared a short one-page summary of various things to consider when dealing with crypto with an aim of highlighting the potential tax issues relating to this relatively new area. This is not intended to be a comprehensive analysis and as always, the firm recommends reaching out to professionals to get further advice.
What are cryptocurrencies?
Cryptocurrencies, also known as virtual currencies or crypto, is a new form of digital asset that can be used to buy goods and services. Unlike most currencies, crypto operates under a decentralised system, which means they are not controlled by one person or government. Bitcoin is an example of a popular cryptocurrency.
Crypto is accounted for as property
Whilst crypto like Bitcoin carry similar features to traditional currency (e.g. cash), they are considered property for tax purposes in most jurisdictions. This means that they might give rise to capital gains tax or losses when disposed off for cash, traded or used to buy something.
Crypto mining results in taxable income
The term crypto mining means earning cryptocurrencies by solving cryptographic equations over the internet through the use of computers. Many users earn additional income through this method. Any crypto earned as a result of this activity is considered taxable income for that respective period.
Loss/theft of crypto currency
Similar to traditional currency, owners of crypto can be impacted by loss or theft of their virtual currency through various means. However, unlike traditional currency, loss or theft of crypto can be reported as a capital loss. Due to the unique nature of the currency, any capital loss claims would have to be substantiated by very specific evidence.
Closing remarks
There has been a lot of attention on Crypto by regulators. Earlier this month, Nigeria’s central bank announced a crackdown on cryptocurrency that appeared to make dealing on any exchanges illegal, citing issues with its volatility and opaqueness. South Africa’s tax agency SARS has also reportedly set its sights on bitcoin traders, in the form of audits asking taxpayers to disclose any income derived from the crypto asset. It is therefore recommended that any looking to get involved should learn more about all legal and compliance implications.
For more information contact Baraka Cassian baraka@cassian.co.tz, visit the Cassian & Associates firm profile or website.
MGI Worldwide with CPAAI, a top 20 ranked global accounting network and association with almost 10,000 independent auditors, accountants and tax experts in some 460 locations in over 100 countries around the world.