Forex trading tax in South Africa: how SARS taxes your profit

What gets taxed

South Africa taxes residents on a residence basis: a tax resident is taxed on worldwide income, wherever it arises.^[1] Profit from forex or CFD trading is therefore taxable whether the broker is a local FSCA firm or an offshore one, and whether or not the money is brought back into the country. What counts is the realised result of closed trades, not moving funds between your bank and the broker: floating profit on a still-open position is not yet income.

Income or a capital gain

The rate turns on how SARS classifies the profit: as revenue, taxed as ordinary income, or as capital. For a retail trader, that classification follows the general revenue-versus-capital test, which turns on intention, read from conduct rather than from what you declare, and weighs the frequency of trading, holding periods and how the activity is run.^[2] The Act does have a dedicated foreign-exchange provision, section 24I, but for an individual it is confined to foreign currency held as trading stock and to forward-exchange and currency-option contracts, so an ordinary CFD position with a broker is left to these general rules.^[3] Frequent short-term trading, aimed at profiting from price moves, is normally revenue in nature. It is taxed as ordinary income and added to your other income for the year.

A rare, long-held position may instead be capital, in which case only part of the gain is taxed: for an individual, 40% of the net capital gain is included in taxable income.^[2] The line between the two is fact-specific, so for a borderline case this is a question for a tax practitioner, not a rule you can read off a table.

The rate

When the profit is revenue in nature, it is taxed at your marginal rate on the ordinary progressive scale for individuals, which runs from 18% on the lowest band up to 45% at the top.^[4] Because the profit is added to your salary and other income, the rate that applies is the one for your total for the year, not a flat trading rate. The exact bands change each year and are published in the SARS tax tables.^[4]

Provisional tax

Trading profit has no employer withholding tax from it, so a trader who earns it is generally a provisional taxpayer: a person who receives income that is not a salary.^[5] Provisional tax is not a separate tax. It is a way of paying the year's income tax in advance, in two payments on the IRP6 return: the first by the last business day of August, the second by the last business day of February, at the end of the tax year.^[5] An optional third top-up can follow. The ordinary annual return, the ITR12, is still filed and reconciles what was paid against the final liability.^[6]

Rand, and keeping records

Tax is worked out in rand. An amount received or accrued in a foreign currency is translated into rand under section 25D of the Income Tax Act, at the spot rate on the date it accrues, or a natural person may elect to use the average exchange rate for the year, applied consistently.^[7] The rand figure is what enters the return, so the exchange rate itself moves the taxable amount. Keep the broker's annual statements, including for losing years: a statement of deposits, trades and withdrawals is the document that supports the calculation if SARS asks for it.

Losses and tax paid abroad

Where the trading is revenue in nature, a loss is deductible against income under the ordinary rules, as the flip side of the profit being taxed as income.^[2] If tax was withheld in another country on the same income, it can usually be credited against the South African tax under section 6quat, within limits and on proof from the foreign authority.^[1] Forex and CFD brokers do not normally withhold tax on trading profit, so for most traders this last point does not arise.