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Virtual currencies (‘VC’) are cryptic bundles of data that can be used to make digital payments and it forms part of the wider specter of virtual currencies.

Virtual currencies are digital representation of value that can be digitally traded and functions as a medium of exchange, a unit of account and a store of value. A popular example of a virtual currency is a Bitcoin. A Bitcoin is a decentralised, virtual cryptocurrency that lingers mainly beyond the ambit of the banks and the government. Interested participants can use Bitcoins to buy and sell goods and services without the involvement of banks. Virtual currencies embody a leap away from the traditional banking and payment schemes. Virtual currencies can either be centralised or decentralised, convertible or non-convertible. Convertible currencies have an equivalent value in real currency and can be exchanged back-and-fourth for a real currency.

Due to the fact that ‘VC’ is decentralised and operates without the authority or administration of the state or the banks, some users have questioned its trustworthiness. This includes more issues such as concerns about taxation, loss of fees for banks and diminishing demand for local currencies. On the contrary the use of virtual currencies is an attractive alternative to traditional banking because of ease of use and low transaction costs. All transactions involving cryptocurrency, including money you get from trading cryptocurrency is subject to the general taxation laws and is therefore taxed.

Although the South African Revenue Services (SARS) doesn’t specify how cryptocurrency transactions are to be dealt with, it is clear that all asset transactions attract some form of tax. When trading cryptocurrency, taxation laws do apply. This includes a possible gains tax, such as when you buy a Bitcoin as an investment and then sell it at a profit or an income tax, where the transactions form part of your ordinary business activities. Above this, when deciding whether your crypto transactions will incur capital gains tax or income tax factors such as intent, the duration for which the asset is held and how it was financed will be taken into account.

In conclusion, the cryptocurrency industry is legal and largely unregulated around the world. Governments are looking into ways of establishing some regulations regarding its use. It is important to find out everything there is about a countries taxation laws before buying into the virtual currency.