Capital Gains Tax was introduced in South Africa on the 1st October 2001. It forms part of the normal income tax and comes about most often for taxpayers when they sell their homes or investment properties at a price which is more than when they bought the same property.
Capital Gains Tax is applicable to individuals, close corporations, companies and trusts and it is dealt with on your annual income tax return. If you make a profit when you are selling your property you will be taxed on it, but at a lower rate than normal income because only a portion of the capital gain, being 40% in the case of the individual is added to the taxable income of that individual and not the full profit. In the case of a company, a close corporation or a trust 80% of the profit gets added to the income of that entity.
If you sell your primary residence there is a R2 million exclusion for those taxpayers. This means that the first R2 million of your capital gains is exempt from tax.
If you sell your primary residence there is a R2 million exclusion for those taxpayers. This means that the first R2 million of your capital gains is exempt from tax. This means that most taxpayers won’t actually need to pay Capital Gains Tax if they sell their primary residence. The capital gain is determined by deducting the original cost to acquire the property, all expenses incurred to improve the property and the selling cost from the selling price. The original cost to acquire the property will include but not be limited to purchase price, transfer duty and transfer cost paid to acquire the property. The selling cost will include but not be limited to the commission payable to the estate agent, cost to cancel any bond registered over the property if applicable and the cost of the compliance certificates.
If you sell a property that is not your primary residence and the gain is greater than the annual exclusion of R40,000.00 the sale will attract Capital Gains Tax. The maximum amount of Capital Gains Tax payable in such event shall be as per the table on the right.
| % Of capital gains added to annual Income | Maximum amount payable in respect of capital gains | |
| Individual | 40% | 18% |
| Close Corporations | 80% | 22,40% |
| Companies | 80% | 22,40% |
| Trusts | 80% | 36% |
The laws pertaining to Capital Gains Tax is amended on a regular basis. Readers are advised to consult with a tax practitioner to determine whether they are liable to pay Capital Gains Tax on the sale of their property. If they are liable they are advised to instruct their tax practitioner to advise them on the amount payable in respect of Capital Gains Tax.
Author: Jacques van der Merwe (B Proc)
After joining De Abreu & Cohen Inc in 2003, Jacques van der Merwe became a director of the law firm during 2004. He specializes in conveyancing and is appreciated for his extensive legal knowledge and inclusive communication with all parties involved
Telephone: (021) 557 6578 | E-Mail: jacques@abcolaw.co.za | Web: https://deabreuandcohen.co.za
Tip: Get the facts first!
Don't be caught off-side by capital gains tax. Consult your tax practitioner before commencing with the marketing of your property, and get clarity on exactly what taxes will be payable once your property is sold.
Tip: Gather Information
When making improvements to the property, make sure to keep a record of all the invoices and payments made. This information will be used when calculating your tax liability if applicable.
Good to know
Improvement expenditures to the property do not include maintenance cost. For example a new boundary wall will constitute an improvement, whereas a new coat of paint will fall under regular maintenance. Your tax practitioner will be able to advise you accordingly in this matter.