Cryptocurrencies: Do they qualify as "gross income"?

Abstract

This article argues that, for purposes of the Income Tax Act 58 of 1962, Bitcoin and cryptocurrencies operating in a like manner are incorporeal property with a comparable value in real currency. The fundamental basis for the advancement of the hypothesis that such cryptocurrencies give rise to protectable proprietary rights are: (i) the rights exist digitally in cyberspace; (ii) the rights have value to their users; (iii) the rights are capable of being owned as cyberproperty; (iv) the rights can be transferred electronically by a possessor of a unique public-private cryptography protected keypair, and (v) the rights can be proved by entries in a digital ledger that records the historical chain of ownership transfers. This article argues further that the average, fair market value of the cryptocurrency in South African Rands on the date of its receipt or accrual as a revenue asset must be included in a taxpayer’s gross income. It is further argued that this value ought to be the average price of the cryptocurrency determined with reference to at least two pricing indices commonly used or accepted in the marketplace.