Taxpayer battling with a crypto tax nightmare for months
Owing Sars R1.7m from profits he has not made.
A Sars official has provided some insight, and hints that there may have been some 'misapplication' in this case. Picture: Shutterstock
A taxpayer has been battling with the South African Revenue Service (Sars) for months after receiving an additional assessment of an eye-watering R1.5 million from crypto trade income.
The taxpayer made only one deposit of R185 000 with a crypto trading platform in 2021, and subsequently withdrew about R70 000. He was left with an additional assessment of more than R1.7 million after penalties were included.
John Godsiff, the aggrieved taxpayer, says the additional assessment was issued on 10 March, and on 13 March he sent a lengthy letter to Sars when he became aware of the additional assessment.
He claims he received correspondence from Sars from an unfamiliar address, and when checking his eFiling profile, there was no correspondence verifying the email from Sars.
The additional assessment was only placed on his profile at a later stage and could be verified as authentic.
ALSO READ: Are you making money with crypto assets? Sars is looking for you
'Bald and threatening' claim
The amount was payable on 17 March. According to Godsiff, R16 000 was extracted from his bank account on the same day.
Sars presented a 'bald and threatening claim' of the sum of R1 738 398 without supplying 'any helpful background' about where the amount had been sourced, nor any detail as to how the amount had been calculated.
Godsiff approached Moneyweb on 18 March, noting that he had attempted to contact Sars via its helpline and had also tried to deal with the matter via the eFiling system.
He received no feedback from Sars following his lengthy letter.
Sars spokesperson Siphithi Sibeko declined to discuss the matter, noting that Sars is prohibited by Chapter 6 of the Tax Administration Act from divulging any taxpayer information.
'In this respect, Sars will not be commenting. The taxpayer concerned can approached [sic] the nearest Sars Branch and all his questions will be addressed therein.'
Following several attempts to obtain an interview with a Sars official to understand how a taxpayer can end up in this situation, Andrew Wes – head of corporate income tax product, process and design at Sars (who was involved in establishing Sars's approach to cryptocurrencies) – explained the process.
ALSO READ: Sars' spotlight on crypto traders signals new era of accountability, say experts
Treatment of crypto profits
The general approach to crypto assets is to treat them as an asset with intangible value – taxpayers will be taxed as if a transaction was a barter transaction.
'The general approach is that crypto assets are to be treated like any other asset for income tax purposes,' Wes told Moneyweb this week.
This approach was set out in a media statement in April 2018 when Sars noted that it will continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare cryptocurrency gains or losses as part of their taxable income.
The onus is on taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties.
ALSO READ: Sars is spying on your social media accounts – Here's why
Taxpayer's additional assessment
Godsiff's additional assessment for the 2022 tax year indicated an amount of more than R1.5 million for 'income other than turnover' classified as crypto asset profits.
He received an understatement penalty of more than R646 000 for 'omission of income' and a penalty of R85 294 due to the underestimation of provisional tax.
Godsiff noted that he did not sell any of his funds (besides withdrawing around R70 000) to be able to make such a profit.
Two days before he was supposed to pay the additional assessment, he had an amount of R102 217, with a cash balance of R4 153 in his account on the crypto platform.
ALSO READ: Unjustified debt collection measures cause unnecessary taxpayer distress
Clear as mud
Following a visit to a Sars office, he lodged a notice of objection, a remission of penalties, and a suspension of payment. Subsequently, he received a statement of penalty with a null balance and a confirmation of the suspension of payment. 'The position is as clear as mud,' he said.
His income tax assessment for the 2023 year was equally 'confusing'.
The assessment indicated that he owed Sars an amount of R1.7 million, yet the assessment summary information indicated a net debit amount of 0.00.
According to Godsiff, he has not received any further correspondence from Sars.
Wes did not comment on the Godsiff matter, stating only that it had been escalated.
However, he gave a simple example of how the process is supposed to work.
The onus remains on the taxpayer to declare crypto profits or losses and to keep all documents that will offer a reasonable level of proof when there is any request for supporting documentation or in the case of a dispute.
If a taxpayer buys crypto assets worth R100 000 and later sells them for R1.2 million, they have a crypto asset profit of R1.1 million, which is subject to tax.
'To the extent that the process deviates from this example there is some misapplication,' said Wes.
This article was republished from Moneyweb. Read the original here.
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