Masters Degrees (School of Accountancy)

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Browsing Masters Degrees (School of Accountancy) by Author "Basson, Remerta"

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    The applicability of section 24I of the Income Tax Act No. 58 of 1962 to bitcoin gains and losses
    (Stellenbosch : Stellenbosch University, 2018-12) Basson, Remerta; Van Wyk, Ellane; Stellenbosch University. Faculty of Economic and Management Sciences. School of Accountancy.
    ENGLISH SUMMARY : Section 24I of the Income Tax Act No. 58 of 1962 (the Act) governs the normal tax treatment of foreign currency gains and losses. In terms of section 24I(3) of the Act, both realised and unrealised gains and losses arising from units of foreign currency held are taken into account in determining taxable income. ‘Foreign currency’ is defined in section 24I(1) of the Act as any currency other than local currency. The term ‘currency’ is not defined in the Act. If the term ‘currency’ is interpreted as including cryptocurrency, section 24I of the Act could also apply to bitcoin gains and losses. National Treasury has proposed, in the Draft Taxation Laws Amendment Bill 2018, to amend the definition of ‘financial instrument’ in section 1(1) of the Act to include any cryptocurrency. The proposed amendment is in line with the view of the South African Revenue Service that bitcoin should be classified as an asset and not as a currency for normal tax purposes. This classification would preclude the application of section 24I of the Act to bitcoin gains and losses. Bitcoin gains and losses may in that case be subject to the provisions which govern the normal tax treatment of gains and losses arising from trading stock and capital assets. Prior to the introduction of section 24I of the Act, authors lamented the complexity of the normal tax treatment of foreign currency gains and losses. Accordingly, section 24I of the Act was introduced with the objective of aligning the normal tax treatment of foreign exchange gains and losses to the principles of fairness, simplicity, economic reality, current tax principles and generally accepted accounting practice. The objectives of a provision may inform its interpretation in terms of a purposive approach to interpretation. Thus, this study set out to determine whether a purposive approach to the interpretation of section 24I of the Act might indicate that the section could be applicable to bitcoin gains and losses. This is in contrast to previous studies, which employed comparative analyses to determine whether bitcoin should be classified as an asset or as a currency for normal tax purposes. A qualitative research approach was followed, which took the form of a desktop literature review. Secondary data were collected and analysed to determine whether the application of section 24I of the Act to bitcoin gains and losses could further the objectives of the provision. The study found that the application of section 24I of the Act to bitcoin gains and losses may lead to the furtherance of the current tax principles of neutrality and simplicity and may align the normal tax treatment of bitcoin gains and losses to generally accepted accounting practice. Therefore, a purposive approach to the interpretation of section 24I of the Act might indicate that the section could be applicable to bitcoin gains and losses. The findings of this study suggest that the current normal tax treatment of bitcoin gains and losses, as well as the amendments proposed in the Draft Taxation Laws Amendment Bill 2018, may undermine current tax principles. The study further revealed that the current normal tax treatment may lead to a tax anomaly. Based on these findings, it is recommended that National Treasury reconsider its position on bitcoin and other cryptocurrencies.