General Category > Shares

Foreign Dividends Tax on Crypto Fund Divi (TUSD)

(1/3) > >>

Johnny:
1) If a South African receives dividends in TUSD from a foreign Crypto Hedge Fund, what's the best course of action to obtain ZAR to pay Foreign Dividends Tax? E.g. sell TUSD for BTC on Binance (1-2% fee), deposit BTC to Luno (tx fee), sell BTC for ZAR (1% fee), deposit to bank account (deposit fee).

2) If all divi TUSD is converted to BTC, and only tax portion of BTC is converted to ZAR, and the remaining BTC is later sold for ZAR, would that constitute a CGT event?

3) And what if the divi was paid in BTC, and non-tax portion later converted to ZAR, would that incur further taxes?

4) Another question is how to declare Foreign Dividends received, given the conversion/tx fees to get the Foreign Dividends Tax amount to ZAR?

5) Also, at what point would the Revenue Service audit the original source of the funds invested in this foreign security?

What irks me is that if the Crypto Hedge Fund turns out to be a scam, then the Revenue Service got its share of profits without rendering any service or infrastructure to protect or facilitate the investment. Taking the capital loss for the tax year does not compensate nearly enough.

[email protected]:

--- Quote from: Johnny on May 22, 2019, 09:19:35 am ---
2) If all divi TUSD is converted to BTC, and only tax portion of BTC is converted to ZAR, and the remaining BTC is later sold for ZAR, would that constitute a CGT event?

3) And what if the divi was paid in BTC, and non-tax portion later converted to ZAR, would that incur further taxes?

4) Another question is how to declare Foreign Dividends received, given the conversion/tx fees to get the Foreign Dividends Tax amount to ZAR?

5) Also, at what point would the Revenue Service audit the original source of the funds invested in this foreign security?

What irks me is that if the Crypto Hedge Fund turns out to be a scam, then the Revenue Service got its share of profits without rendering any service or infrastructure to protect or facilitate the investment. Taking the capital loss for the tax year does not compensate nearly enough.

--- End quote ---

Couple of points.
2/3  SARS is of the opinion that each disposal of crypto (whether sold for ZAR or any other asset such as another crypto currency) constitutes a disposal for CGT purposes at the time of disposal.   (and not when its finally converted to ZAR).  I agree with this opinion.
4.  I'm unfamiliar of the nature of the TUSD/Crypto Hedge fund.  So I'll prefer not to give an opinion on this, other than note that foreign dividends would normally result in the dividend being taxed at a. maximum effective rate of 20% in South Africa.  Whether the fund would meet this definition is debatable (alternative is to be taxed at normal rates).  Either way, the "dividend" should be translated at either the spot rate or the average rate for the year and included in your taxable income in the appropriate manner.

5.  Interesting question.   SARS effectively operates on a self assessment basis.  I.e. what you submit is what you get assessed (automatically) for.   There risk engine would normally dictate whether you get flagged for an audit or not.   E.g. abnormal expense claims, large refunds, unmatched IRP5 income or any other risk indicators might flag you for an audit.     The risk in the hypothetical scenario that you depict would typically be flagged due to an inexplicable increase in your assets/capital base, which if you're submitting a balance sheet (not all taxpayers are required to submit a balance sheet), might trigger the risk assessment on submission of the return.  Alternatively, if you had to buy a property cash, this might flag something at that point in time (also note that SARS use of data is improving, and will continue to improve, as the amount of data it can collect and process improves).   

Putting aside the moral side of things.   Residence based taxation is a worldwide principle adopted in multiple countries, with the view that a residence are taxed (within limitations) on there world wide income - irrespective of whether the taxing country provides the "infrastructure" etc.   

As a aside - I do think Crypto is going to provide some interesting case studies in the years to follow - as for example, you and many others have assumed that any gain's from crypto are capital gains......  this is not necessarily the case - as its arguable that if the only way you can realize the investment in crypto  is via selling at a later stage you clearly have a profit making intention and thus the gain would be revenue and not capital.  (Kruger rands have a interesting case law in this regard).

gcr:
XXX - surely the time of holding Bitcoins - i.e. time erosion between buy and sell dates determine whether it is CGT or income. I too believe there are going to be some extraordinary test cases in the not too distant future

Orca:
Holding securities with a properly registered and regulated financial house regardless if they are tangible or not will be treated by SARS as capital in nature if held for over 3 years. This could be non physical exposure to Kruger Rands, gold and platinum or physical coins held.

While the crypto coins are not traded via reputable exchanges they would never be regarded as Capital even if held for many years. The same applies to forex trading.

It would not be long before these coins are traded on the JSE and other world stock exchanges.

The saying of "hold for keeps" to be regarded as capital is nonsense as no one does this. Not even the minister of finance buys to hold for keeps.

 
 

[email protected]:

--- Quote from: Orca on May 27, 2019, 07:56:22 pm ---Holding securities with a properly registered and regulated financial house regardless if they are tangible or not will be treated by SARS as capital in nature if held for over 3 years. This could be non physical exposure to Kruger Rands, gold and platinum or physical coins held.


 

--- End quote ---

Hi Orca - the 3 year deemed CGT rule in terms of section 9C of th income tax act only applies to "equity shares" as defined in the income tax act.   

"Equity share" is defined in S1 of the income tax act as “equity share” means any share in a company, excluding any share that, neither as respects dividends nor as respects returns of capital, carries any right to participate beyond a specified amount in a distribution. 

Note for completeness, the definition of equity share  is slightly extended in 9C itself (which would extend it to include a "participatory interest in a portfolio of a collective investment scheme"), which would include a properly registered hedge fund (whether in crypto or otherwise)

Crypto itself, as is investments in currency and Kruger Rands is not included within the definition of an equity share and is thus subject to the normal interpretation rules on capital/revenue, which includes, believe it or not, a "for keeps" test as defined in Barnato Holdings Ltd vs SIR.   

In the case of Crypto, this exclusion (from the 3 year rule) leaves you open for any proceeds to be taxed as revenue.  I do however encourage all crypto investors to read the extensive case law in Kruger rands - as this has set precedents that are helpful.


Should you wish to read up on this further, I fully encourage you to source and read the "SARS comprehensive guide to Capital Gains Tax".   It is 931 pages long (20 odd of which discuss the capital vs revenue tests - other than the 3 year rule), and in my opinion is still the best guide available for the interpretation of South African Capital Gains tax.

Navigation

[0] Message Index

[#] Next page