In the same way as other legislation regarding tax can be very complicated, Capital Gains Tax is no different and you would be well advised to seek professional help when considering disposing of your property to see what the tax implications might be for you.
But in an attempt to simplify the basics, I’d like to lay out some of the main points for consideration.
The tax was introduced in October 2001 and is payable on the profit a seller makes when disposing of his property. The ‘gain’ is determined as the amount by which the proceeds exceed the ‘base cost’ of the asset.
In broad terms, the ‘base cost’ is what you paid for the property plus any expenditure and can include the following:
- The cost of acquiring the property including the purchase price; transfer costs; and professional fees (like fees paid to an attorney, surveyor or auctioneer).
- The cost of improvements, alterations and renovations as long as you can prove them by producing invoices or receipts.
- The cost of selling or disposing of the property – advertising costs, cost of valuations and estate agent’s commission.
Although the law was introduced in 2001, if you had acquired the property before that date you can choose one of three methods to value the property:
- 20% x (the proceeds less expenditure incurred after 1 October 2001)
- The market value of the asset as at 1 October 2001 as long as the valuation was obtained before 30 September 2004
- or a time-apportionment base cost method which involves a formula that looks like this:
Original cost + (proceeds – original cost) x number of years held before October 2001
Number of years held before 1 October 2001 + number of years held after October 2001
If it is determined that you are eligible to have to pay Capital Gains Tax, the amount payable is included in your taxable income and is subject to normal tax and is payable at the normal tax rates.
As an individual taxpayer, the first R30 000 of the total capital gain would be disregarded and then 33.3% of the gain made would be included in your taxable income for the year of assessment when the property was sold. However, if the property is held in the name of a company, a close corporation or a trust, then 66.6% of the gain is included in the taxable income.
There is some good news, however, as from 1 March 2012 the first R2 million of any capital gain is exempted from Capital Gains Tax if the property is your primary residence as long as the property is registered in the name of an individual or a special trust. Also, if you and your spouse both have an ‘equal interest’ in the property, you will both qualify for the primary residence exclusion of R1 million and both be able to claim the annual exclusion of R30 000.
So when investing your own capital and making financial decisions as you use property investments or other vehicles to grow and protect your wealth you need the very best advice that is available especially in the areas of tax and estate planning. Before making any final decision on how your money needs to be employed, look to independent specialists who have the right team of professionals for advice and guidance. Work with the team that has the track record of success, integrity and security that you want.
Contact Us at IGrow Wealth Investments – our team and I will help you on the road to achieving the success you deserve.