What is Capital Gains Tax?
Category FAQ's
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
General
• CGT Introduced on 1 October 2001;
• Regulated in Scheduled 8 of Income Tax Act;
• All RSA Residents – regardless where the property is situated;
• Non RSA Citizens – Property in South Africa;
• Entities liable for CGT
• Natural Persons
• Companies
• Close Corporations
• Trusts
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
CGT is payable
• Where there is a disposal of a capital asset
• Disposal
• Sell
• Donate
• Exchange
• Deemed Disposal
• Shares
• Immovable property
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;
How are “proceeds” calculated?
• Selling Price minus Commission
How to calculate Capital Gain
• Capital Gain (Profit) is the amount by which:
• The Proceed exceeds
• The base cost
• Minus the annual exclusion
How does date of acquisition influence base cost
• After 1 October 2001
• Calculation
• Before 1 October 2001
• Valuation (before 4 September 2004)
• Time apportionment formula in Act
Onus of proof on tax payer
Calculation the base cost?
• Cost of asset on acquisition (Purchase price)
• Plus costs directly related to acquisition
• Transfer fees
• Transfer Duty
• Cost of a Valuation
• Plus cost to improve asset
• Pool
• Jacuzzi
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(annual exclusion – Natural Person) ( R 300 000 in Year of Death – Natural Person)
• 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;
How to calculate CGT
• Percentage of CGT (Inclusionary rate);
• Is added to the taxpayers income;
• Taxpayers then pay income tax on that portion of the Capital Gain;
Calculation of CGT
Two factors
• Portion of Capital Gain ( inclusionary rate) is added to income
X
• Income tax rate
• Natural Persons (Marginal Rate)
• Juristic persons ( Statutory flat rate)
= Effective CGT Rate
Inclusionary Rate
Percentage of Capital Gain added to income
• Close Corporation - 66.6%
• Trust - 66.6%
Income Tax Rates
• Natural Person 0 – 45% Marginal Rate
• Company 28% Statutory flat rate
• Close Corporation 28% Statutory flat rate
• Trust 45% Statutory flat rate
Rate – Different entities pay CGT
A – Natural Person (0- 13.653%)
• 33.3% of Capital Gain (Inclusion)
X
• 0 – 45% Income Tax (Marginal rate)
=
• 0 – 13.653% CGT (Effective rate)
• Thus a Maximum of 13.653% of Capital Gain Tax)
B – Companies & Close Corporations (18.48%)
• 66.6% of Capital Gain ( Inclusionary rate)
X
• 28% Income Tax (Statutory flat rate)
=
• 18.48% CGT (Effective rate)
Thus
• (18.48% of Capital Gain)
C – Trusts (27.31%)
• 66.6% of Capital Gain (Inclusionary Rate)
X
• 45% Income Tax (Statutory flat rate)
=
• 27.31% CGT (Effective rate)
Thus (27.31% of Capital Gain)
When must the CGT be paid?
• Transfer Duty - Before registration
• VAT - 1st Vat return after registration
• Income Tax – End of Financial Year after registration
• Capital Gains Tax – end of Financial Year after Registration
Very Important!!
• 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)
Author: Welgedacht Properties
