South Africa is Ramping Up Its Crypto Tax Reporting Compliance Programs

SARS Has Established A Dedicated Crypto Audit Unit

The South African Revenue Service (SARS) is intensifying its efforts to target cryptocurrency holders who have neglected to declare their crypto transactions on recent tax filings.

A dedicated crypto asset unit within SARS' audit division has begun sending notices to taxpayers who have omitted their cryptocurrency activities and their resulting tax liabilities from dealings on various crypto exchanges.

Thomas Lobban, director at Ibex Consulting (a part of Latita Africa), explained that these audits generally span the last five years, although SARS can extend its investigations further if necessary. The agency uses data obtained from crypto exchanges and compares it with filed tax returns to spot inconsistencies and pinpoint individuals for deeper review.

"SARS has the authority to approach anyone and demand information about your tax matters, including from cryptocurrency platforms," Lobban stated in a recent discussion. "The SARS team is highly knowledgeable about cryptocurrency, operates with sharpness, is diligently fulfilling its duties, and has ample resources to pursue its goals."

Lobban also highlighted that SARS has been recruiting specialists with the technical skills needed to perform crypto-related audits. This initiative supports South Africa's wider objective of aligning with the Financial Action Task Force (FATF) standards, following the country's placement on the FATF' grey list' in 2023. The grey list designates nations with notable weaknesses in their Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) frameworks.

Being on the FATF grey list can significantly impact a country's economy, potentially deterring investors, signalling weak legal compliance, and often resulting in a downgrade of the nation's investment rating.

Grey-listed countries must collaborate with the FATF to develop an action plan to address identified weaknesses. This might involve strengthening laws, improving enforcement, or enhancing oversight of financial sectors like cryptocurrency exchanges. Once the FATF determines that sufficient progress has been made, the country is removed from the list.

Canada's Approach to Crypto Tax Reporting Compliance

The Canada Revenue Agency (CRA) also pursues crypto tax compliance through a specialized unit. According to a CRA media spokesperson, "the CRA established a dedicated cryptocurrency unit in 2017 to build intelligence, and conduct audits focused on risks related to cryptocurrencies. This unit has enhanced the CRA's ability to monitor and enforce compliance in areas of emerging risk, including the cryptocurrency space."

The CRA requires taxpayers to report crypto transactions (e.g., trading, mining, staking or using crypto for purchases) as taxable events on the date that the cryptocurrency was disposed of for tax purposes or when earned, depending on the nature of the crypto transaction.

The CRA uses data from crypto exchanges and collaborates with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) to track unreported crypto transactions. Unlike traditional investments, cryptocurrency transactions are decentralized and often lack clear paper trails, leading some to mistakenly assume they're off the CRA's radar. Since major crypto exchanges are required to register with FINTRAC, the CRA often has data pertaining to unreported crypto exchanges.  

Canada's Voluntary Disclosures Program

Selling crypto, trading one coin for another, or using it for purchases triggers a disposition, resulting in capital gains/losses or business income if you are a frequent trader or miner. Many individuals do not realize that their actions have resulted in a taxable disposition until they receive a reassessment from the CRA, potentially resulting in a hefty tax bill. Luckily, there is a way to get ahead of this and potentially reduce your amount owing.

The Voluntary Disclosures Program (VDP) allows taxpayers to correct past tax mistakes, such as unreported crypto income or unfiled returns, including T1135-specific foreign property reporting, by voluntarily disclosing them to the CRA. If accepted, you avoid criminal prosecution, and penalty and interest relief may be granted for the most recent 10 years, though you'll still owe back taxes, plus interest for the most recent 3 years.

The VDP is particularly relevant for crypto holders, as the CRA has ramped up crypto tax audits and data collection from Canadian exchanges, making non-compliance harder to hide.

Once the CRA catches on to any non-compliance and requests more information from the taxpayer, this will typically disqualify that taxpayer from eligibility under the VDP. As such, it is prudent to get ahead of this before the CRA contacts you. Our team of expert Canadian crypto tax lawyers can assist you with this process.

Pro Tax Tip: Bundle Crypto Corrections with Loss Harvesting for Maximum Offset

As a Canadian tax resident, if you have unreported crypto gains in Canada or South Africa, disclose them strategically by pairing past corrections with current tax-loss harvesting to shrink your tax bill.

In Canada, you can use the VDP to report previously unreported transactions say, unreported income from Bitcoin sales from 2020, while simultaneously selling underwater crypto holdings in the current tax year. The capital losses can offset your disclosed gains, reducing the back taxes owed, and VDP acceptance could waive penalties entirely. To see if a VDP is right for you, contact one of our expert Canadian tax lawyers.

FAQ

How does the South African Revenue Service (SARS) identify unreported crypto transactions?

According to the SARS website, legislatively, SARS is granted a wide range of collection powers in terms of the Income Tax Act, including a requirement for third-party service providers to submit financial data.

Enforcement and audit processes are confidential and not shared with members of the public. SARS obtains data directly from cryptocurrency exchanges and cross-references it with filed tax returns. If discrepancies appear—such as unreported trades or income—taxpayers receive notices for deeper review. SARS has broad legal authority to demand information from any person or platform about your tax affairs, and its team includes specialists trained to analyze crypto activities.

Does the CRA have data from Canadian crypto exchanges?

Yes, the CRA can access data from Canadian exchanges, which must register with FINTRAC as Money Services Businesses. The CRA has requested user records in the past (e.g., Coinsquare in 2020, when the CRA filed a Federal Court application to compel the Toronto-based cryptocurrency platform to disclose tax information related to its customers) and collaborates with FINTRAC to track large or suspicious transactions. It also uses blockchain analytics to trace activity, making unreported crypto harder to conceal.

Disclaimer: This article just provides broad information. It is only up to date as of the posting date. It has not been updated and may be out of date. It does not give legal advice and should not be relied on. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.