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Capital Gains Tax

Capital Gains Tax

Capital Gains Tax (CGT) does not apply to every property transaction. What is important to know is that when you want to sell your property you are well informed and understand the implications pertaining to your property transaction. Long-term capital gains are from assets you've held for more than a year. One year is not enough; it must be at least a year and a day. Short-term gains reflect holdings of one year or less.

Note, too, that capital gains are generally taxed only when realized i.e., when you sell an asset. If you're sitting on some stock or assets that has doubled in value, you don't owe Uncle SARS any money until you sell it. CGT was introduced in South Africa in October 2001. In short, it is tax payable by a seller on the profit that he made from the sale of a fixed property or the capital acquired from a sale of assets globally.

CGT applies to all natural persons (individual South African resident taxpayers) as well as legal entities (companies, close corporations and trusts) and includes foreign investors.

Exclusions to CGT can be found in the Eighth Schedule to the Income Tax Act, 1962 (the Act), which determines a taxable capital gain or assessed capital loss. 
 
When we look at the sale of a primary residence, the majority of sales transactions will not be subject to CGT because the first R2-million of any capital gain or loss on the sale is disregarded for CGT purposes. The owner or their spouse must reside in the property as their main residence and it must predominantly be used for domestic purposes and registered in the name of the natural person (individual /owner or spouse name).

When a residential property, used for business purposes is sold, the CGT exemption will be apportioned for those periods where the property is not used as a primary residence. 
 

There are some cases where the owner of the property will be treated as having been ordinarily resident for a continuous period of up to two years even if they have not been living in the primary residence during that two-year period, provided the following circumstances apply: 
 

  • The primary residence has been accidentally rendered uninhabitable
  • The primary residence was in the process of being sold while a new primary residence was acquired or was in the process of being acquired
  • The property was being built on land acquired for the purpose of erecting your primary residence,before 1 March 2012 and the primary residence exclusion was R1.5-million. In the budget speech of March 2012 the exemption on a primary residence has been changed to R2-million.

 

The most important fact to remember is that the capital gain is on the sale and not the purchase price of the property. Meaning that there are a number of expenses that will need to be taken into account to determine whether CGT is applicable or not i.e.:
  •  Sellers need to deduct the amount that the property is sold for from the purchase price of the property. They then have to add all the costs they have incurred to acquire the property such as transfer costs and duties, attorney fees, agent's commission and other services rendered. These costs must include any renovations, which qualify as improvements to the property and routine maintenance costs and deduct this from the sale proceeds.
  • Only once this nett profit is determined, it is possible to calculate the CGT.
  • Section 26A of the Act provides that a taxable capital gain must be included in the seller’s taxable income and will be taxed according to their tax bracket. The CGT is payable and have to be submitted at the end of the financial year during which the property was sold. 
 


In the case where the primary residence is registered jointly in the names of the owner and their spouse, each one would benefit from the exclusion according to the percentage interest they hold in that residence. In the case of each spouse holding an equal share in the property, each would qualify for a primary residence exclusion of R1-million, subject to the fact that both parties reside in the property together and do not own separate primary residences.

The sale of an individual’s second home or holiday home will have no exemption and full CGT will apply on the capital gain achieved.

Property tax is complicated and it is always advisable to seek the advice of a professional tax consultant regarding CGT that sellers are unsure of. An expert tax consultant or conveyancing attorney can offer invaluable guidance.

Long-term capital gains are from assets you've held for more than a year. One year is not enough; it must be at least a year and a day. Short-term gains reflect holdings of one year or less.

Note, too, that capital gains are generally taxed only when realized -- i.e., when you sell an asset. If you're sitting on some stock that has doubled in value, you don't owe Uncle SARS any money until you sell it.