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Capital Gains Tax

Capital Gains Tax

CAPITAL GAINS TAX

Effective from the 1 October’01 – Profits accrued from this date on the sale of certain capital assets will be taxed. (These capital assets may be movable or immovable, tangible or intangible. All natural and legal persons, residents and nonresident are liable for CGT.)

Capital Gains Tax (CGT) is a transaction based tax where gains or losses are brought to account annually by inclusion in the tax payer’s annual income tax return.

CGT only taxes the profit on the sale of the property and not the total value of the property.

A Capital gain or loss is the difference between the base cost of an asset and the proceeds received upon the disposal of that asset.

CGT is calculated by applying the tax rate (Stipulated below) to the difference between the sale value of the property and the base cost.

The base costs include the following:

*Acquisition cost which would include: Purchase Price, Transfer duty & costs, Vat.

*Capital costs of maintaining title or rights to the asset

*Improvement / enhancement costs

*Costs of disposal: Agent’s commission, Advertising & Valuation costs, Professional fees

Therefore the Base cost is the price paid for the asset, plus certain costs incurred that are directly related to buying it, selling it or improving it.

Ongoing costs are not included in the base costs: Bond Interest, repairs, insurance premiums and Rates & Taxes.

The tax rates for the purpose of calculating the tax payable is a follows:

Individuals:

25% of profit @ tax payer’s marginal tax rate (maximum 40%)

Close corporation and companies:

50% of profit @ 30% tax rate

Trust:

50% of profit @ 40% tax rate

The first R1, 000 000 of profit for the primary owner occupied residence if it is registered in the name of a natural person or special trust. And not exceeding 2 hectares.

A roll over situation or deferral of CGT may occur when a property is transferred from one spouse to another.

A tax payer has an annual primary exemption of R10 000 in terms of CGT. The exemption is R50 000 in the year in which the tax payer passes away.

NON RESIDENCE LIABLE TO PAY CGT ON DISPOSAL OF ANY IMMOVABLE PROPERTY OWNED IN SOUTH AFRICA

TIME BASED APPORTIONMENT METHOD

Purchase Amount less Sold amount = Profit

Profit divided Time span from purchase to sale =YEARS

Multiply Time span from effective date to sale = from 1 Oct’01 YEARS

= Time based apportionment of the profit

Time based apportionment of the profit

Minus R10 000 exemption

Multiply _% is subject to CGT

Multiply @ tax rate of _% = R that is tax payable

E.g.

Individual purchases Holiday house in Dec’91 for R250 000 And sells Sep’06 for R850 000.

Profit = R600 000

Time span from purchase to sale = 15 years

Time span from effective date of sale = 5 Years

Time based apportionment of the profit

= R600 000 divided 15 multiply 5

= R200 000

Minus R10 000 exemption =R190 000

25% of this is subject to CGT =R 47 500

Marginal tax rate of 40% =R 19 000 tax payable

The VALUATION BASIS requires that the property owner has a valuation of his property, as at the effective date, before 30 September’03.

With gains/losses after the effective date subject to CGT

The Act does not prescribe who may perform the valuation. If the valuation differs by more that 20% to the time based apportionment method, it will attract further scrutiny by the Receiver of Revenue and a possible penalty tax!

DEATH

On Death a person is deemed to have disposed of all property at a market related price. This in turn generates CGT as well as death duties of 20%.

The exception to this is where a person bequeaths their estate to their spouse and the bequest is exempt from both CGT and estate duty.