In South Africa, Capital Gains Tax (CGT) applies to the disposal of various types of assets, including immovable property.
Tarryn Gravenor, attorney and conveyancer at Herold Gie Attorneys shares the basic principles relating to CGT on the disposal of immovable property:
Definition of Capital Gain
A capital gain arises when an asset is sold for more than its base cost. For immovable property, the base cost typically includes the purchase price, any costs incurred to improve such immovable property, and certain costs incurred when selling such property.
Calculation of Capital Gains
To calculate CGT on the disposal of immovable property, follow these steps:
Determine the proceeds from the sale: This is the selling price of the property;
Calculate the base cost: This includes the original purchase price, the cost of any improvements made to the property, and costs related to the acquisition and disposal of the property (e.g., legal costs, estate agent’s commission, conveyancing [transfer] costs, including Transfer Duty paid to SARS upon acquisition of the property);
Calculate the capital gain: Subtract the base cost from the proceeds.
Exemptions and Rebates
Primary Residence Exemption:
If the property being sold is your primary residence, capital gains up to a certain threshold (currently R2 million) may be exempt from CGT.
Annual Exemption:
Each individual is entitled to an annual exclusion on capital gains (currently R40,000.00). This means the first R40,000.00 (or R300,000.00 in the year of death) of the total capital gain in a tax year is not subject to CGT.
Tax Rates
Individuals are taxed on 40% of the net capital gain, which is included in their taxable income and taxed at their marginal income tax rate. This means that the maximum effective tax rate on capital gains for individuals is 18% (40% x 45%).
For companies, the effective tax rate of capital gains is currently 21,6% (80% x 27%), while for trusts (other than special trusts), the effective tax rate of capital gains is currently 36% (80% x 45%).
Time of Disposal
CGT is triggered upon the disposal of the asset, and the underlying events which qualify as the basis for the trigger include a sale, donation, exchange, loss, death, and emigration.
Record Keeping
As with tax affairs in general, it is important to maintain comprehensive records of your property transaction, including purchase and sale agreements, invoices for improvements, and any related expenses, and the final account that you receive from the Conveyancing Attorney who handled the transfer of the property into your name, as these will help substantiate the capital gains calculation when submitting your tax return or applying to SARS for a Directive as to CGT, as the case may be.
If in doubt be sure to seek professional advice and assistance from a suitably qualified Attorney conversant with Property Law and tax matters and your Tax Advisor.
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