SARS Introduces Specialized Crypto Audit Unit

The South African Revenue Service (SARS) is ramping up enforcement against cryptocurrency holders who have failed to report their crypto transactions in recent tax filings.

A specialized crypto asset unit within SARS’ audit division has started issuing notices to taxpayers who have not disclosed their cryptocurrency activities and associated tax obligations from transactions on various crypto exchanges.

Thomas Lobban, director at Ibex Consulting (a division of Latita Africa), explained that these audits typically cover the past five years, though SARS can extend its investigations if needed. The agency leverages data from crypto exchanges and cross-references it with tax filings to identify discrepancies and flag individuals for further scrutiny.

“SARS has the authority to approach anyone and demand information about your tax matters, including from cryptocurrency platforms,” Lobban explained 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 emphasized that SARS has been bringing in experts with the technical expertise required to conduct crypto-related audits. This effort aligns with South Africa’s broader goal of complying with Financial Action Task Force (FATF) standards, especially after the country was added to the FATF “grey list” in 2023. The grey list identifies countries with significant deficiencies in their Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulations.

Placement on the FATF grey list can have serious economic consequences, potentially discouraging investment, signalling weak regulatory compliance, and even leading to a downgrade in the country’s investment rating.

To be removed from the grey list, affected countries must work with the FATF to implement an action plan aimed at addressing the identified deficiencies. This process may involve tightening regulations, enhancing enforcement measures, and increasing oversight of financial sectors, including cryptocurrency exchanges. Once the FATF deems that adequate progress has been made, the country can be delisted.

Canada’s Strategy for Enforcing Crypto Tax Reporting Compliance

The Canada Revenue Agency (CRA) has also taken steps to ensure crypto tax compliance through a specialized unit. A CRA spokesperson stated, “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.”

Taxpayers are required to report crypto transactions, such as trading, mining, staking, or using cryptocurrency for purchases. These activities are considered taxable events either when the cryptocurrency is disposed of for tax purposes or when earned, depending on the specific nature of the transaction.

The CRA leverages data from cryptocurrency exchanges and works closely with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) to identify unreported crypto transactions. Unlike traditional investments, cryptocurrency operates in a decentralized manner, often without clear paper trails, which may lead some individuals to mistakenly believe their transactions go unnoticed. However, since major crypto exchanges must register with FINTRAC, the CRA frequently has access to data on unreported crypto activity.

Canada’s Voluntary Disclosures Program: An Opportunity for Taxpayers

Selling cryptocurrency, exchanging one coin for another, or using it for purchases constitutes a disposition, which may result in capital gains or losses—or business income if you engage in frequent trading or mining. Many individuals fail to realize they have triggered a taxable event until they receive a reassessment from the CRA, often leading to a significant tax bill. Fortunately, there are proactive steps you can take to address this and potentially reduce your tax liability.

The Voluntary Disclosures Program (VDP) provides taxpayers with an opportunity to rectify past tax errors, such as unreported cryptocurrency income or unfiled returns, including T1135 foreign property reporting, by proactively disclosing them to the CRA. If your application is accepted, you can avoid criminal prosecution, and you may receive relief from penalties and interest for the past 10 years. However, back taxes will still be owed, along with interest for the most recent three years.

The VDP is especially important for cryptocurrency holders, as the CRA has intensified its crypto tax audits and data collection from Canadian exchanges, making it increasingly difficult to avoid detection.

If the CRA identifies discrepancies and requests information from a taxpayer, he or she may no longer qualify for the VDP. Therefore, it’s wise to take action before the CRA reaches out. Our team of expert Canadian crypto tax lawyers can guide you through this process.

Tax Pro Tip: Combine Crypto Corrections with Loss Harvesting for Optimal Tax Benefits

As a Canadian tax resident with unreported crypto gains in Canada or South Africa, you can strategically disclose them while minimizing your tax liability by combining past corrections with current tax-loss harvesting.

In Canada, the VDP allows you to report previously unreported transactions—such as undisclosed Bitcoin sales from 2020—while simultaneously selling underperforming crypto assets in the current tax year. The resulting capital losses can offset disclosed gains, lowering the back taxes owed. If accepted into the VDP, you may also avoid penalties entirely. To determine if the VDP is the right option for you, consult one of our expert Canadian tax lawyers.

Frequently Asked Questions (FAQs)

How does the South African Revenue Service (SARS) detect unreported cryptocurrency transactions?

According to the SARS website, the agency has extensive collection powers under the Income Tax Act, including the authority to require third-party service providers to submit financial data.

While SARS keeps its enforcement and audit processes confidential, it gathers data directly from cryptocurrency exchanges and cross-references it with filed tax returns. If discrepancies arise—such as unreported trades or income—taxpayers may receive audit notices for further scrutiny. SARS also has broad legal authority to request tax-related information from individuals and platforms, with a dedicated team of specialists trained to analyze cryptocurrency activities.

Does the CRA collect data from Canadian cryptocurrency exchanges?

Yes, the CRA can access data from Canadian cryptocurrency exchanges, which are required to register with FINTRAC as Money Services Businesses. The CRA has previously sought user records, such as in 2020 when it filed a Federal Court application to compel Toronto-based Coinsquare to disclose customer tax information. Additionally, the CRA collaborates with FINTRAC to monitor large or suspicious transactions and utilizes blockchain analytics to track activity, making it increasingly difficult to hide unreported crypto transactions.

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 articles. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.

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