Capital Gains Tax (CGT)

Capital Gains Tax (CGT)

Posted on June 26th, 2008 Huis-Huis 1 comment

Capital Gains Tax (CGT) was introduced in South Africa on 1 October 2001. CGT is a tax on the profits realized on the sale of assets such as immovable property.

Exemptions

In the hands of an individual the first R10 000 capital gain per year is not taxed. Additionally, in the case of a primary residence, the first R1 000 000 capital gain or loss is exempted from CGT. This exemption does not apply on a second property.

Capital Gains Tax On Individuals

In cases where the capital gain exceeds these limits, individuals should include 25% of the net gain from the sale in their annual income. Tax is then levied at the applicable income tax scale. The effective CG tax rate should then be less than 10% of the net capital gain.

Capital Gains Tax On Companies

For companies, close corporations and trusts 50% of the net gain is used to calculate the tax payable. For these entities there is no R1 000 000 tax exemption.

Deductions

Remember, you only pay tax on the capital gain or profit you make, not on the total proceeds from the sale. The cost of buying, improving and maintaining the property can be deducted from the amount you realize through the sale. Accurate records of these costs are very important.

Capital Gains Tax Advice

The implications of capital gains tax on the purchase or sale of a property can be complex and it is advisable to seek professional advice from an attorney, accountant or financial adviser.