The applicability of section 24I of the Income Tax Act No. 58 of 1962 to bitcoin gains and losses

Basson, Remerta (2018-12)

Thesis (MAcc)--Stellenbosch University, 2018.

Thesis

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.

AFRIKAANSE OPSOMMING : Artikel 24I van die Inkomstebelastingwet No. 58 van 1962 (die Wet) reël die normale belastinghantering van buitelandse valutawinste en -verliese. In terme van artikel 24I(3) van die Wet word beide gerealiseerde en ongerealiseerde winste en verliese ten opsigte van buitelandse valuta-eenhede in ag geneem by die bepaling van belasbare inkomste. ‘Buitelandse valuta’ word in artikel 24I(1) van die wet omskryf as enige geldeenheid wat nie ʼn plaaslike geldeenheid is nie. Die term ‘geldeenheid’ word nie in die Wet omskryf nie. Indien die interpretasie van die term geldeenheid daarop dui dat dit kriptogeldeenhede insluit, sou artikel 24I van die Wet ook op bitcoinwinste en -verliese van toepassing kon wees. Nasionale Tesourie stel in die Konsepwysigingswetsontwerp op Belastingwette van 2018 voor dat die definisie van ‘finansiële instrument’ in artikel 1(1) van die Wet gewysig word om enige kriptogeldeenheid in te sluit. Die voorgestelde wysiging is in lyn met die siening van die Suid-Afrikaanse Inkomstediens dat bitcoin as ʼn bate eerder as ʼn geldeenheid geklassifiseer moet word vir normale belastingdoeleindes. Hierdie klassifikasie sou die toepassing van artikel 24I van die Wet op bitcoinwinste en -verliese verhoed. Bitcoinwinste en -verliese mag in daardie geval aan die wetsbepalings wat die normale belastinghantering van winste en verliese ten opsigte van handelsvoorraad en kapitale bates reël, onderwerp word. Voor die inwerkingtrede van artikel 24I van die Wet, was skrywers krities van die kompleksiteit van die normale belastinghantering van buitelandse valutawinste en -verliese. Dienooreenkomstig is artikel 24I van die Wet bekendgestel met die doel om die normale belastinghantering van buitelandse valutawinste en -verliese met die beginsels van regverdigheid, eenvoudigheid, ekonomiese realiteit, huidige belastingbeginsels en algemeen aanvaarde rekeningkundige praktyk te belyn. Die doelwitte van ʼn voorsiening kan die uitleg daarvan in terme van ʼn doeldienende benadering tot uitleg voorlig. Hierdie studie is dus onderneem om vas tel stel of ʼn doeldienende benadering tot die uitleg van artikel 24I van die Wet mag aandui dat die artikel op bitcoinwinste en -verliese van toepassing kan wees. Dit stel die studie in kontras met vorige studies wat vergelykende analises onderneem het om te bepaal of bitcoin as ʼn bate of as ʼn geldeenheid geklassifiseer moet word vir normale belastingdoeleindes. ʼn Kwalitatiewe navorsingsbenadering is gevolg, in die vorm van ʼn lessenaar literatuurstudie. Sekondêre data is ingesamel en geanaliseer om te bepaal of die toepassing van artikel 24I van die Wet op bitcoinwinste en -verliese die doelwitte van die artikel sou kon bevorder. Die studie het gevind dat die toepassing van artikel 24I op bitcoinwinste en -verliese die huidige belastingbeginsels van neutraliteit en eenvoudigheid mag bevorder, en die normale belastinghantering van bitcoinwinste en -verliese met algemeen aanvaarde rekeningkundige praktyk mag belyn. ʼn Doeldienende benadering tot die uitleg van artikel 24I van die Wet mag dus daarop dui dat die artikel van toepassing kan wees op bitcoinwinste en -verliese. Die bevindinge van hierdie studie dui daarop dat die huidige normale belastinghantering van bitcoinwinste en -verliese, sowel as die voorgestelde wysigings in die Konsepwysigingswetsontwerp op Belastingwette van 2018, huidige belastingbeginsels mag ondermyn. Die studie het verder getoon dat die huidige normale belastinghantering van bitcoinwinste en -verliese tot ʼn belastinganomalie kan lei. Gebaseer op hierdie bevindinge, word daar aanbeveel dat Nasionale Tesourie sy posisie op bitcoin en ander kriptogeldeenhede heroorweeg.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/104960
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