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Ok. Got itAs cryptocurrency grows in popularity, you need to make sure you bring these into your estate planning.
By Fiduciary Advisory Team
As cryptocurrency grows in popularity, you need to make sure you bring these into your estate planning, make a trusted person aware of the fact that you own such currency, and how to find they can find it.
What is cryptocurrency? What is cryptocurrency mining? |
Despite their apparent ‘anonymity’, cryptocurrencies can be tracked because of their interaction with traditional traceable banking and payment mechanisms.
They are also already under scrutiny by tax authorities, including the South African Revenue Service (SARS).
Authorities can trace bank transfers and payments by a taxpayer to and from a cryptocurrency platform. SARS has already announced that it is investing in technical expertise to track these kinds of digital footprints. It has already included questions about cryptocurrency investments in the capital gains tax portion of tax returns, creating source codes for cryptocurrency-trading profits (2572) and losses (2573). So, all cryptocurrency transactions must be declared – not only if you cashed out. You must also state if you mined cryptocurrency.
How does SARS tax cryptocurrency?
SARS does not see cryptocurrency as a currency but rather as an asset that has been included in the definition of a ‘financial instrument’ in the Income Tax Act.
This means that the ‘tax’ cryptocurrency will attract in your hands will depend on whether you are an active trader in cryptocurrencies or a long-term investor.
If you are an active trader, the profits you make from trading in cryptocurrency will be taxed as ‘income’ at your marginal tax rate.
If, however, you hold cryptocurrency as an investment (on capital account), and you sell or dispose of it, such gain will be subject to capital gains tax (at a maximum effective of 18% for individuals).
Regardless of how you hold the cryptocurrency, ie on capital or income account, disclosures are required to be made SARS.
SARS is also very clear that you also need to declare if you were paid in any way with cryptocurrency, which is taxable like any other income.
Cryptocurrency is also treated as an asset in your estate for both executor’s fees and estate duty purposes.
You must make your advisor aware of the cryptocurrency you own.
Cryptocurrency will be assets in your estate and can be dealt with to an extent in your will. It would be tragic if, for instance, your estate included several bitcoins, but your financial advisor was not aware of this when assisting you with your estate planning and the drafting of your will. In such a scenario, it could increase the cost of dying (executors fees, estate duty etc) and accordingly could negatively impact any liquidity calculations performed during the estate planning process. Because of the nature of cryptocurrency and the way in which an individual holds it, it could be very difficult, if not impossible for your executor to trace your holdings and properly account for them if they have not been brought to their attention. It is therefore advisable to ensure that your executor and/or family members are aware of your holdings and how to access them.
You need to ensure that your bitcoin is identifiable and accessible for your executor and beneficiaries.
Unlike traditional currencies, bitcoins do not exist in a physical form. It is very technical however briefly they are held on a digital ledger using ‘blockchain’ technology, a chain of digital signatures. Each owner transfers ownership to the next owner by digitally signing a hash of the previous transaction, the public key of the next owner and adding these to the end of the coin. Most bitcoin owners have bitcoin wallets, which reflect the value of your bitcoins. In reality, however, the wallet contains the ‘keys’ to your bitcoins. The ‘keys’ are crucial for transferring ownership or spending your bitcoin. It is therefore the keys that need to be protected and practically dealt with by your executor. If a key is lost or no longer accessible, then, in essence, you will have lost your bitcoin. The challenge, therefore, is to make your loved ones or trusted advisor aware of your ownership of bitcoin and to ensure that they have access to the keys.
Some practical options to consider:
Some other considerations relating to cryptocurrency Cryptocurrency is currently unregulated in South Africa and accordingly financial planners and wealth managers are not allowed to provide advice about this asset. However, if you decide to go it alone (so to speak):
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DISCLAIMER
This article is issued by the Fiduciary Advisory Team of Nedgroup Private Wealth (Pty) Limited (“Nedbank Private Wealth”) for information purposes only and does not constitute an offer or solicitation of financial services or products. Recipients should not rely on such information as advice without obtaining financial, tax or other professional advice. Nedbank Private Wealth is not authorised to provide advice or intermediary services with regards to cryptocurrency. It does not warrant the completeness or accuracy of any information contained herein, nor does it not make any representation that the information provided is appropriate for use by all investors in all jurisdictions. All opinions expressed and recommendations made are subject to change without notice. Nedbank Private Wealth and its employees may hold securities or financial instruments mentioned herein. Nedbank Private Wealth and its subsidiaries accept no liability for any loss or damage of whatsoever nature including, but not limited to, loss of profits or any type of financial or other pecuniary or direct or special indirect or consequential loss howsoever arising whether in negligence or for breach of contract or other duty as a result of use or reliance on the information contained in this communication.