As from 1 October 2001, Capital Gains Tax (CGT) applies to a resident’s worldwide assets and to a non-resident’s immovable property or assets of a permanent establishment in South Africa.
On disposal of immoveable property the seller becomes liable for payment of Capital Gains Tax on any profit made in respect of the property. However, Capital Gains Tax is not paid on transfer of a property but declared in an annual income tax return.
The Capital Gains Tax general rule is: When you sell your home (primary residence), the capital gain realized on the sale is exempt from Capital Gains Tax.
CGT is triggered on disposal of an asset.
Important disposals include
Abandonment, scrapping, loss or donation;
Vesting of an interest in an asset of a trust in the beneficiary;
Distribution of an asset by a company to a shareholder; and
Granting, renewal, extension or exercise of an option.
Deemed disposals include:
Termination of South African residency
A change in the use of an asset;
An asset ceasing to be part of a permanent establishment; and
For years of assessment commencing on or after 1 January 2013, the reduction or waiver of a debt, subject to certain exclusions
The transfer of an asset as security for a debt or the release of such security;
Issue of, or grant of an option to acquire a share, debenture or unit trust; and
Loans and the transfer or release of an asset securing debt.
CALCULATION OF A CAPITAL GAIN OR LOSS
A capital gain or loss is the difference between the proceeds and the base cost.
Expenditure included in the base cost:
acquisition, disposal, transfer, stamp duty, STT and similar costs;
remuneration of advisers, consultants and agents; and
costs of moving an asset and improvement costs.
Expenditure excluded from the base cost:
expenses deductible for income tax purposes;
interest and raising fees, except for listed shares and business assets; and
expenses initially recorded and subsequently recovered.
METHODS FOR AN ASSET ACQUIRED BEFORE 1 OCTOBER 2001
Valuation as at 1 October 2001;
20% of the proceeds;
Time apportionment base cost
HOW TO CALCULATE THE PROFIT
It is important to note that If a loss is made on the capital disposal of the property, it is offset against any capital gains made in that year of assessment. However, if no capital gains were made, the loss may be carried forward to the following years of assessment.
To determine the profit made as a result of a disposal, the capital gain is calculated by deducting the base costs from the proceeds of the disposal:-
For example: proceeds – base cost - exclusions x 40 percent
“Base costs” include the following:
The cost of improvements, renovations, alterations or the like which can be proved by presentation of receipts and invoices;
The cost of acquiring the property which includes the purchase price, the cost of an option, moving costs, transfer duty, VAT, transfer costs and professional fees (paid to attorneys etc.);
The cost involved in disposing of the property, such as estate agents commission, valuation costs, advertising costs and professional fees.
Costs that are not deductible include the following:
Rates to the relevant municipality; and
Expenditure on repairs.
CALCULATING BASE COST (using the time apportionment method)
ORIGINAL COST +
(proceeds - original cost) x no. of years held before 1/10/2001
no. of years held before 1/10/2001 + no. of years held on/after 1/10/2001
Note must be taken of the recent increases applicable to capital gains, effective from 1 April 2016, as set out hereunder:
PERSON / ENTITY INCLUSION RATE % MAXIMUM EFFECTIVE RATE %
and Special Trusts 33.3 up to 40 13.7 to 16.4
Companies and CC’s 66.6 up to 80 18.6 to 22.4
Trusts 66.6 up to 80 27.31 to 32.8
CURRENT AMOUNT: CHANGES:
Annual Exclusion R 40 000,00 Increased from R 30 000,00 to R40 000,00
Primary residence R 2 000 000,00 Remains at R 2 000 000,00
EXCLUSIONS AND REBATES
Natural persons and special trusts R40 000 (2016 : R30 000);
Natural persons in the year of death R300 000 (2012 : R200 000).
Valuations should have been obtained before 30 September 2004. For certain assets these valuations should have been lodged with the first tax return submitted after 30 September 2004, or such other time as SARS may allow, provided the valuation was in fact done prior to the requisite date:
Where the market value of any intangible asset exceeds R1 million;
Where the market value of any unlisted investment exceeds R10 million;
Where the market value of any other asset exceeds R10 million.