The quickest answer is yes, as forex trading profits are taxable income according to the South African Revenue Service (SARS). Traders have to report their Forex profits as part of their net taxable income. They have to pay income tax according to the applicable tax brackets.
If you earn more than R79,000 annually as a forex trader, then you fall into the tax system, ranging between 18% to 45%. Here is an example: If you make R90,000 per year from trading, you pay tax on R11,000 above the R79,000 threshold.
Important Note: Any trading loss during the tax year is deductible from taxable income to reduce tax liability. However, the amount or percentage of discussion is unclear because this concern is subjected to some limitations of SARS.
Traders are advised to maintain their trading record which includes recording all the profits and losses. It can also be helpful to ensure that you pay the correct amount of tax – no less or no more.
Calculating Tax on Forex Trading Gains in South Africa
First of all, the Forex income is determined by adding all trading gains. Traders can reduce the calculated amount by deducting allowable expenses involved in forex trading activities. Common deductions include the following (all with proper documentation):
- Broker commissions
- Internet and/or computer costs
- Platform or data charges
- Trading education expenses
The remaining amount is taxable, and it is added to the trader’s other taxable income sources like investment income, employment income, etc. The total taxable income determines the tax bracket and the rate the trader falls under for that particular tax year.
Forex traders can also benefit from tax-advantage accounts and strategies like holding long-term positions to pay capital gains tax instead of higher income tax rates on trading gains.
Tax Benefits for Forex Traders in South Africa
Forex traders in South Africa can reduce their tax liabilities by utilizing tax benefits and exemptions. Here is the list:
Rebates and Deductions: This involves deductions for business expenses involved in trading activities, such as platform fees. The best trading platform South Africa charges reasonable prices without compromising service quality.
Double Taxation Agreements: Double Taxation Agreements (DTAs) with other countries help prevent double taxation. This eliminates taxes on certain incomes. Forex traders can leverage these agreements for tax gains.
Interest Income Exemptions: Traders have to pay taxes on interest on forex trading accounts only if the exemption limit exceeds it. This limit is R23,800 for individuals under 65 and R34,500 for those 65 and above.
Taxation Tips for South African Traders
Here are expert tips for forex traders in South Africa:
- Develop a good understanding of how tax works for forex traders in South Africa.
- Maintain documentation for all your related expenses to make a valid claim for tax deduction.
- Register yourself as a provision taxpayer.
- Deduct your expenses to reduce your tax liabilities.
Wrapping Up
Hopefully, we’re able to answer all your questions related to tax liabilities for forex traders in South Africa. Paying taxes on your trading gains makes you a responsible trader and saves you from future penalties.
