Crypto Tax Audits: The impact of Project AmaBillions
Tax Compliance
Sars is increasing its scrutiny of crypto traders by issuing tax notices and clarifying exchange control regulations. Traders must comply immediately to avoid penalties.
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SINCE the introduction of the Crypto Revenue Augmentation Unit by the sa Revenue Service (Sars), numerous taxpayers who have traded, invested or even used crypto assets for purchases have received audit and requests for relevant material notices, specifically relating to such crypto asset transactions.
These Notices are focused on the tax treatment of taxpayers’ crypto asset transactions, for the relevant periods in which they have made disposals of crypto assets, and Sars is indiscriminately cracking down on this potential revenue cash cow.
With Sars’s Project AmaBillions bolstering resources and recruitment to focus exclusively on the recovery of tax debt, crypto non-compliance remains on Sars’s radar, and there has never been a better time to become voluntarily compliant!
Given the popularity of crypto asset transactions and the potential for substantial revenue generation following from crypto asset disposals, Sars, in line with global tax enforcement trends, has significantly improved its capacity to detect crypto activity and non-compliance.
Sars’s powers exceed the ordinary and include the power to request CSV files from Crypto Asset Service Providers. This is done through strategic partnerships with financial institutions and crypto exchanges. In fact, major South African crypto exchanges are required to submit Know Your Customer information and transaction reports, giving Sars direct insight into user activity.
This enables Sars to have sight of valuable data. With this, Sars can leverage its automation and AI-driven data analytics to cross-reference taxpayers’ declared income and assets with transactional data on the various exchanges. When discrepancies arise, audits and enforcement actions are sure to follow.
The focus on crypto assets appears to be in line with Project AmaBillions, Sars’s wide-reaching initiative to fast-track the recovery of tax debt, which is undisputed and owed to Sars. This drive seems to include crypto-related non-compliance, a lucrative avenue of revenue generation not only for taxpayers but also for Sars. With an intensified data-driven approach, taxpayers engaged in crypto asset transactions should ensure that their affairs are fully compliant.
What does this mean for taxpayers?
Due to the nuanced nature of crypto assets as a whole and the lack of guidance in terms of the correct tax treatment, the functions of this specialist crypto unit require more human intervention than most others.
The recent focus on crypto assets and the broader compliance drive, with initiatives like Project AmaBillions, is likely to include support for the Crypto Revenue Augmentation Unit to further identify non-compliance and recover revenue through crypto asset disposals.
Per Sars’s media statements, it is estimated that there are at least 5.8 million South African taxpayers who have acquired crypto assets, and Sars knows that not all taxable events in respect of these assets have been disclosed.
The potential revenue collection from crypto assets is significant, and Sars is looking to dip into the crypto wallets of taxpayers to recover what is due to them. However, this can be avoided by taxpayers who want to avoid a “head in the sand” approach and declare their transactions honestly.
Many taxpayers are not devious and are simply unaware that they need to disclose their crypto assets, specifically the disposals from which they derive an income or profit. By way of example, disposals would include transactions such as the sale of a crypto asset or swapping one crypto asset for another, to name a few.
Ignorance is no excuse, and the failure to disclose such transactions, specifically any gain derived from them, could have serious consequences for taxpayers. Penalties and interest may be imposed on these outstanding amounts, at percentages as significant as 200 percent.
The tax treatment of crypto assets is in accordance with existing tax frameworks, such as profits being included in a taxpayer’s gross income, but where it can be demonstrated and properly motivated, may be included in the capital gain tax calculations of the taxpayer.
It must be borne in mind that each case is reviewed on its own merits, and that there is no one-size-fits-all approach with regard to such classification of crypto asset disposals.
Taxpayers who have been active in the crypto space and have not declared their crypto transactions at all are encouraged to engage with specialist tax attorneys and tax practitioners to ensure that their compliance requirements are met.
Such professionals can aid taxpayers with voluntary disclosures, assess their tax liability based on historical transactions and assist in regularising the treatment of crypto asset transactions. All this, while maintaining legal professional privilege (where engaging with a tax attorney) and mitigating the exposure to risk.
This recommendation is made on the back of numerous taxpayers who have received audit notices and letters of final demand, due to Sars’s improved crypto transaction identification methods.
This clearly demonstrates the revenue authority’s intention to send a message to taxpayers: comply, or be made to comply. A strong message, when viewed with the efforts being made by the revenue authority, through Project AmaBillions.
Crypto assets are not invisible to Sars, and where a taxpayer attempts to sweep their transactions under the rug, Sars will see this and take the necessary measures to ensure that they recover what is due.
SARS has the means at its disposal to identify crypto transactions and take the necessary steps to recover any tax liability which may arise following the disposal of crypto assets.
As the methods and technology used by Sars continue to improve, so will their recovery efforts to drive revenue collection, and severe will be the punishment for non-compliant taxpayers, who attempt to obfuscate their crypto transactions. With increased manpower and resources being available to Sars, and recovery initiatives such as Project AmaBillions, there has never been a more crucial time to ensure compliance.
It is thus advisable to seek professional assistance and bring your crypto asset affairs to heel. Taxpayers are required to treat their crypto asset transactions in the same manner as they would any other tax matter and ensure compliance in all aspects. You do not have to do it alone; where professionals are here to help.
* Junaid Bhayla is a tax attorney at Tax Consulting SA.
** The views expressed here do not reflect those of the Sunday Independent, IOL, or Indeendent Media.