Selling? A Quick and Easy Guide to Capital Gains Tax
Category Helpful Hints
At first glance, Capital Gains Tax (CGT) may seem like yet another thing to worry about when completing a tax return, but it needn’t cause confusion.
It is worth pointing out that because CGT was instituted in South Africa
on 1 October 2001, this date is considered the “valuation date”, and only gains made on a property from 1 October 2001 is liable for CGT.
Jansen Snyman, Founding Director of Snymans IncorporatedAttorneys, says the first thing to note is that CGT is not a separate tax that you need to register for, it is merely an additional item that would be included in your annual tax return, when relevant.
So, the question is, when is CGT relevant?
Snyman says CGT is charged by SARS on gains made upon the disposal of immovable property (most commonly a home, building or piece of land).
This means that, if for example, a property were acquired in 2005 for R6 million (the base cost), and then sold in 2015 for R9 million (the proceeds), the total capital gain is R3 million.
However, in most cases, Snyman says additional costs are incurred for maintenance or improvements to a property.
Therefore, in the above example, if the owner of the property added a swimming pool to the value of R20 000 and converted the garage into a cottage which cost R80 000, these values would be deducted from the overall gain or profit made on the sale of the property.
In addition, a natural person is eligible for an “annual exclusion” to the value of R40 000.
To illustrate the above scenario, the following example can be used:
R9 million (proceeds of sale)
- R6 million (base cost)
= R3 million (capital gain)
- R100 000 (improvement)
= R2 900 000
- R40 000 (annual exclusion - natural persons only)
- R2 million (primary residence exclusion - natural persons only)
= R860 000 (aggregate capital gain)
It is worth pointing out here, though, that because CGT was instituted in South Africa on 1 October 2001, this date is considered the “valuation date”, and only gains made on a property from 1 October 2001 is liable for CGT.
This means that while any individual selling a property is liable for CGT, the value on which CGT will be calculated will be based on the value of the property as at 1 October 2001, and the gain or profit made from this date up to the date of sale.
“It can be seen from the above example that there are also certain exclusions to CGT, such as where the property being sold is the primary residence of an individual,” says Snyman.
“In such a situation, any capital gain up to a value of R2 million is exempt from CGT. In other words, if a primary residence is sold for R2 million or less, the full capital gain is disregarded. However, if this property belongs to a legal entity, such as a company, the exclusion will not apply.”
While this is a broad overview of what to expect when it comes to CGT, Snyman says it is always advisable to seek professional assistance to ensure all regulations are complied with and calculations are done accurately.
Author: Jansen Snyman, Founding Director of Snymans Incorporated Attorneys