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Capital Gains Tax was introduced in South Africa on 1 October 2001, and brings South Africa in line with international practice.
Who has to pay Capital Gains Tax
All South African residents
Non South African residents who make a profit or loss, when selling fixed property of a capital nature located in South Africa.
What exactly does Capital Gains Tax meant to homewners?
Taxpayers, including individuals, trusts, companies and close corporations, will be taxed on the profit they make when they sell and asset or property of a capital nature, Capital Gains Tax is basically a tax on the resale of assets.
In most cases, it will not affect your primary residence, provided the property is smaller than two hectares and the profits is less than R1 million. However, homeowners will be liable for CGT on 2nd properties or holiday homes that are not occupied as a primary residence or on any portion of a primary residence that is used for business purposes. CGT also affects all properties registered in the name of close corporations, trusts and companies.
What is excluded from Capital Gains Tax?
Primary residence in your name
Your private vehicle – if not used for business
Proceeds from an endowment or life assurance policy
Compensation from personal injury or loss
Winnings from a Casino’s, Lottery or Competition
What percentage of CGT payable?
For legal persons, 50% of their net profit will attract CGT and for natural persons 25%. This portion of the net gain will be taxed at your marginal tax rate. As an effective tax rate this means you will pay a maximum effective rate of 10% and corporate taxpayers a maximum of 15%. For example, for natural persons the maximum marginal tax rate is 40%. Assuming the aggregate capital gain for the year of assessment is R250 000, 25% of R250 000 is R62 500, which is taxed at 40%, therefore R25000 as a percentage of the original profit made is 10%.
No CGT is payable prior to 1 Oct 2001.
You do not have to pay the full CGT when you sell your asset. This is how it works – lets say you bought your property in Oct 1996 for R500 000 and then sold it for R1 million in Oct 2006.
Example
Cost R500 000 + profit R500 000 x 5 years (before validation)
Divided by 10 (5 years before and 5 years after)
How will SARS fin out about profits made?
SARS’s computer software, the New Income Tax System (NITS), will interface with systems in the Deeds Registry, Motor Vehicle Registry, JSE Securities Exchange (JSE) and financial institutions.
Information:
For more tax related information contact your local SARS office, visit www.sars.gov.za
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