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Capital Gains Tax in South Africa
Buying a new house in South Africa or just looking
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mortgage rate.
Capital Gains Tax
Capital Gains Tax was introduced in South Africa on 1 October 2001, and brings South Africa line with international practice.
Who has to pay Capital Gains Tax
All South African residents.
Non South African residents who make a profit or loss, when selling fixed property of a capital nature located in South Africa.
What exactly does Capital Gains Tax mean for homeowners?
Taxpayers, including individuals, trusts, companies and close corporations, will be taxed on the profit they make when they sell an asset or property of a capital nature, Capital Gains Tax is basically a tax on the resale of assets.
In most cases, it will not affect your primary residence, provided the property is smaller than two hectares and the profit is less than R1 million. However, homeowners will be liable for CGT on second properties or holiday homes that are not occupied as a primary residence or on any portion of a primary residence that is used for business purposes. CGT also affects all properties registered in the name of close corporations, trusts and companies.
What is excluded from Capital Gains Tax?
Primary residence in your name
Your private motor vehicle - if not used for business
Proceeds from an endowment or life assurance policy
Compensation from personal injury or loss
Winnings from a Casino's, Lottery or Competition
What percentage of Capital Gains Tax payable?
For legal persons, 50% of their net profit will attract CGT and for natural persons 25%. This portion of the net gain will be taxed at your marginal tax rate. As an effective tax rate this means you will pay a maximum effective rate of 10% and corporate taxpayers a maximum of 15%. For example, for natural persons the maximum marginal tax rate is 40%. Assuming the aggregate capital gain for the year of assessment is R250 000, 25% of R250 000 is R62 500, which is taxed at 40%, therefore R25 000 is payable. The R25 000 as a percentage of the original profit made is 10%.
No capital Gains Tax is payable prior to 1 Oct 2001.
You do not have to pay the full capital gains tax when you sell your asset. This is how it works - lets say you bought your property in Oct 1996 for R 500 000 and then sold it for R 1 million in Oct 2006.
Example
Cost R 500 000 + Profit R 500 000 x 5 years ( before Validation )
divided by 10 ( 5 years before and 5 years After )
How will SARS find out about profits made?
SARS's computer software, the New Income Tax System (NITS), will interface with systems in the Deeds Registry, Motor Vehicle Registry, JSE Securities Exchange (JSE) and financial institutions.
Information
For more tax related information contact your local SARS office, visit www.sars.gov.za
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