If you are thinking of making an investment, or selling an asset you own, Capital Gains Tax (CGT) is something you should seriously consider. CGT is tax that can possibly be incurred on the sale of what is called a “capital asset” .
Some examples of capital assets are property (car, home etc), shares, bonds, and even collectibles like art. In terms of South African tax law, CGT is only applicable on the actual sale or a deemed sale of a capital asset. It does not apply to cash.
In South Africa, items that are used for private use, such as cars, furniture etc, will not form part of CGT. There are certain – very specific – rules around this. For instance, boats and planes that are used for private use would normally be excluded, however, if the boat exceeds 10metres or if the plane has an empty weight of more than 450kg then it will form part of the CGT calculation. It is therefore very important not to make assumptions about your assets. Speak to a qualified person or familiarize yourself with laws governing CGT.
Some important points in respect of Capital Gains Tax
- For individuals, CGT has an inclusion rate of 40%. This means that if you made a capital gain of R100 for the tax year, 40% of that net capital gain will be included in your income tax calculation for the year. That is R100 x 40% = R40 will be used to determine your income for that tax year. Your income will then be taxed according to your relevant marginal tax rate.
- You get a R2m primary residence exclusion. What this means is that: if for example you sell the home that you are currently living in for R3m. And the cost of the property when you bought it was R1m. Your capital gain on the property would be R2m. When performing the capital gains calculation, first apply the R2m primary residence exclusion against the capital gain that you made. Therefore, R2m (Capital gain) – R2m (exclusion) =R0 capital gain. Therefore no tax is payable on the sale of the property, because the capital gain was equal to (or less than) the primary residence exclusion.
- A general capital gains exclusion applies in addition to the primary residence exclusion mentioned above. This general capital gains exclusion is R40 000 when disposing of capital assets while you are still alive. The exclusion becomes R300 000 if you are no longer alive, and your assets are being considered as deemed sales for CGT purposes within your estate.
Whenever you put together a financial plan, please make sure to discuss this with your financial planner. Ensure that all capital gains tax considerations are taken into account. It is important to get expert advice on this, as capital gains tax can become very complicated depending on the assets that you own.