Capital Gains Tax

Capital Gains Tax

What is Capital Gains Tax?
The basic concept is that if a capital item (property) is sold at a profit then the profit amount if subject to CGT
Who is Liable for CGT and when must it be paid?
1.    Residents
•    CGT is applicable to any capital asset of a South African Resident (asset that is owned in any part of the world)
2.    Non Residents (tell your clients to register for tax and de-register after transfer)
•    CGT is applicable to the following:
    Fixed property in SA
    Any interest or right in immovable property situated in SA
    Assets connected with a SA permanent establishment of the non-resident

Calculation of CGT
Capital gain or Capital Loss = proceeds from the sale of the capital assets (or deemed disposals – when you die- you need to pay estate tax to the master – it is in the name of the person who has died) less Base cost of asset less – Annual Exclusion
X the rate of inclusion
= Capital gain included the Taxable Income and taxed at the company or individual tax rate
•    CGT is triggered by a disposal of an asset
    A capital gain or loss is the difference between the proceeds & base cost (purchase price) – including all costs (improvements) occurred acquiring and improving the asset;
    Base cost for assets:
    Acquired before Oct 2001 – value determined at that date plus expenditure after that date;
    Acquired after Oct 2001 – accrual costs in incurred in acquiring or creating the asset;

    Base cost is reduced by amounts included in normal tax computation, e.g. Repairs (amount tax deductible) and maintenance – NB!!! (renovations – add value)
    All gains and losses are calculated and the net amount is included in the income of the taxpayer at the inclusion rate;

The Primary residence exemption
    Applies to natural person and special trusts; (don’t put your primary- (personal) house into a trust – you will lose the benefit – R 30 000)
    If the primary residence is disposed of by the resident;
    First R 2 million of the profit is excluded
    This is only applicable to SA residents
    The exemption may be apportioned in certain cases;

When must the CGT be paid?
Taxable in year of assessment – year of provisional tax
Nb!!
    Don’t include furniture in the purchase price – client will have to pay CGT on the furniture – if you do include it, you need to specify it and both buyer and seller needs to be aware of it.
    Transfer duty, government duty, commission is all deductible from CGT. (PART OF YOUR COSTS)