Avoiding crypto’s landmines: How to beat scammers – and play fair with the taxman
In the fourth and final episode in the series which unpacks crypto currency for would-be investors, Luno’s Johan Hetzel and Robyn Berger of Bowmans provide key considerations for those starting out.Hetzel, a forensic accountant, offers some excellent tips on how to avoid being scammed.Tax expert Berger shares her insights on what the taxman will demand – with the good news that losses can be offset against other income (up to a limit).In this episode we also cover critical homework required before making that first investment in a digital asset, the role of financial advisors and much more.
Excerpts from the interview with Johan Hetzel and Robyn Berger
Johan Hetzel on buying crypto through a reputable exchange
We see quite a large number of scams where people are being offered a ridiculous return on investments, such as investing in something like Bitcoin, especially individuals who are not as well averse to the complexities around the crypto industry.
So, to answer your question, crypto should and must be bought through a reputable exchange.It is specifically to protect consumers because there are some people going around claiming to be brokers for some of these exchanges who are in fact not.That is why we welcomed the recent Financial Sector Conduct Authority’s announcement last month, because it will bring some much needed consumer protection.For people who are looking to purchase crypto, it is important to do sufficient research in that regard, to make sure that you’re dealing with exchanges that are reputable, like Luno, that are licensed in other countries in which they operate, to make sure that you have that protection.
Robyn Berger on what the tax man will demand
There are always tax implications.
It is an interesting one because people seem to think that there is some kind of magic in crypto where the tax rules do not apply.But, the basic tax principles definitely do apply.As a holder of crypto or a seller of crypto, you really need to think to yourself, am I holding this on a capital account or am I holding this on a revenue account? Depending on the analysis, that will determine the tax outcomes for you.SARS certainly seems to take the approach that anyone trading in crypto has a speculative nature and would therefore always have a revenue account in mind.It kind of brings me back to those court cases from the old days where guys used to buy Krugerrands and hold onto them and then sell them.There were many court cases that said, there’s no fruit and tree, so there’s no asset that generates an income and therefore could be in a capital account.Rather, we sit here with an asset that could appreciate or depreciate in value.And thus it seems to imply that it’s always speculative in value.
However, some of those court cases found there is capital in some cases.So, I would kind of equate it to those court cases.Unfortunately, a lot of them are very low level court cases so they are not as binding as we would like them to be.
I think that the longer you hold, the longer it may indicate that there was a capital intention.However, there were strange outcomes in those gold coin cases where guys who held on for many years were still in the revenue account.
So, it is really difficult.What I will say is that parties should keep accurate records of what they buy, what they sell and the prices they pay because with the new arrangements of crypto being declared a financial instrument, there are going to be reporting requirements for certain institutions.So, whatever you are doing will be known to SARS if you are trading through these arrangements.
Hetzel on the homework required before making an investment in a digital asset
An investor would need to do some research when looking to invest in a coin.Firstly, you need to understand what investment is needed when you are looking to buy a crypto coin of some sort.
What I mean by that is, are you looking for long term investment type purposes or speculative purposes, because that will determine what type of coins you could look at.When looking at a coin, it is very important to understand the white paper, which would explain what the purpose of the coin is.In addition to that is looking at the team behind that white paper and the coin to make sure that they are reputable and that there is no adverse or negative media associated with those teams.Similarly, when you look to start investing or buying crypto assets, it is very important to make sure that you know the exchanges that are out there and that you do some research around those exchanges.Luno has a learning platform available that gives you a step by step guide in terms of how to go about doing your research, like what the one on one requirements are for different coins.From there, you can start investing from as little as R10.
See also:
– [Regulating crypto: Plaudits for SA’s approach with timely lessons for digital currency investors]
– [Buying Crypto: Getting your own slice of tomorrow’s money a lot easier than you may think]
– [All you ever wanted to know about Crypto but were too shy to ask]
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