Taxes on Binary Options Profits in South Africa
June 27, 2016
Some traders of binary options will tell you that the secret to being successful with binary options is to be consistently making good profits on every trade. This is far better than settling on consistent but small profits. One thing is sure though, whichever way you trade, it is possible to make some good money by trading binary options. But what about taxes?
You may not get it right to generate a consistent profit, but even so there are smart traders who do, every day in fact. Some traders wrongfully tell you that all you need to do so as to profit is to create an account. You get brokers who advertise that when you open an account with them you’ll be able to generate an 80% return within minutes of signing up with them. They say that you’ll be profiting throughout the day. These are hoax brokers. The truth is, you must learn the fundamentals about binary options and you must trade with legitimate brokers . There is more to binary options trading than you think and its not as easy as what some people claim.
What About Taxes?
Before the Cyprus Securities and Exchange Commission started regulating binary option brokers, profits were taxed as gambling profits. CySEC in Cyprus regulates binary option brokers. The only way to make a success of this form of trading is to choose regulated and licensed brokers who understand all the ins and outs and who don’t try to get you to avoid paying tax on your profits. There are three types of taxes a binary option trader needs to take into account:
- Capital gains tax.
- Income tax.
- Gambling tax.
The only way you’re going to be able to trade binary options in a carefree fashion in South Africa is to connect yourself to reputable brokers for South Africans. For instance TopOption is fully EU regulated and licensed, offering good services and products that make the whole process of trading easy and above board. It is regulated and licensed by the CySEC (Cyprus Securities and Exchange Commission).
South Africa Taxes Profits from Binary Options
If you look at binary options as gambling and you make predictions without conducting analysis, you won’t make it. You can make it however, even living in a country where binary options aren’t regulated. But what happens if you do get it right and you start making profits? Are your profits taxed and how does taxation work? Taxes on binary options depends on the tax laws of your country. If you are uncertain whether you need to be paying taxes on binary options, check with your government. Avoiding tax is a criminal offense. You want to do things the right way, otherwise you may find yourself trying to trade binary options from a prison cell.
The reality is when when you earn profits from binary options trading in South Africa, you have to pay taxes. The amount you will pay will be based on the tax bracket you fall in. If you aren’t sure, consult a tax adviser because this will ensure you file in the right bracket so as to reduce overall tax liability.
This isn’t the Same as Gambling
There are many people who liken trading binary options with gambling. They know for instance that gamblers who win a fortune at the casino won’t have to pay tax on their winnings. This also applies to lotto winners as well. Winnings from the National Lottery are regarded as capital and not included in a person’s taxable income. While your lottery winnings won’t be subject to normal tax in South Africa, winners are supposed to still declare their winnings to the tax authorities in their annual tax returns. The fact that these profits are not taxable has made people believe that the same applies to binary option profits.
There is no doubt that the popularity of binary options trading has increased, and South Africans are able to legally trade binary options in an industry that is all but unregulated. In 2007 the Bond Exchange of South Africa (BESA) created a new trading platform. This allowed investors to trade binary options for the first time. South African citizens started investing in the financial markets in 2007, enjoying the ease-of-use of this trading form.
Being Unregulated doesn’t Mean No Taxes
People in South Africa unfortunately believe that because the binary options industry isn’t subject to any form of legalities from any of the main regulatory bodies of South Africa, there won’t be any taxes to pay, but there are taxes. In fact, binary options income is filed along with any earnings made during the tax year. Once you’ve determined your year’s income, you’ll see which tax bracket you fall into.
When it comes to off-shore profits however, you’re not taxed but only if you trade in a tax haven country. South Africa taxes all profits which are deposited into bank accounts in this country. You also need to have proper FICA documentation to trade with an offshore broker.
It is important to be aware of the tax laws in South Africa. You also need to keep a record of your income. This is because binary options brokers aren’t required by law to provide you with any earnings statements. If you aren’t sure what can be deducted from your binary options trading profits, rather get advice from a tax consultant.
Make Sure Your Binary Options Trading isn’t Futile
While we’ve already said that binary options trading can’t be likened to gambling in a casino, where the two are similar is that they both provide excitement and the chance to have extra money in your pocket.
So how do you intend going about reporting your binary options profits? No matter which country you live in the taxation of binary options profits is complicated. You need to report them as required in your country.
To ensure you keep your binary options trading fun and carefree, report your tax by the due date every year and pay the tax on the profits you make. Failing to do this will simply mean living in constant dread that you’ll be found out and penalized with such heavy fines that everything will just have been futile.
All info was correct at time of publishing