Many homeowners, while aware of the fact that they are likely to pay Capital Gains Tax (CGT) on the profit made when a property is sold, legislated in 2001, might not be aware of the ways in which the tax liability can be reduced.
Van Blerck says with the rising transaction costs of selling and buying property, higher interest rates and increasing costs of moving, it is in the seller’s interest to try and save wherever he or she can.
This is according to Laurence van Blerck, property sales agent at Knight Frank Residential SA, who says with the rising transaction costs of selling and buying property, higher interest rates and increasing costs of moving, it is in the seller’s interest to try and save wherever he or she can.
He says the property selling price is usually very clear, but the costs that are allowed to be deducted from the selling price, thus reducing the CGT amount, are not as obvious.
The first thing to remember is that all the tax allowable costs should be deducted from the selling price in order to establish the true Capital Gain.
These costs will include the original amount paid for the property, transfer duty, the valuation fee, attorney and surveyor fees inclusive of VAT, costs of improvements, agent’s commission on the sale and other costs incurred in the sale. Rates, taxes, insurance and bond interest cannot be included in this amount.
The sellers must distinguish between repairs and improvements on the property, as these are often “lumped together” and should preferably be quoted on and invoiced separately, says Van Blerck.
He says something to bear in mind is that repairs are those jobs that maintain the condition of the property, such as painting the walls, sanding and treating fascia boards, replacing roof tiles.
Repairs is the replacement of like with like, whereas improvements are those items that enhance the property, and are often luxury items, such as new kitchen countertops, new bathroom fittings, etc.
The onus is on the taxpayer to produce records of any and all of the above that will affect the CGT liability, so it is advisable to keep a file from the day the property is bought, where all the crucial documents pertaining to the home will be kept, says Van Blerck.
In addition to filing paperwork on all improvements and repairs, the owners should have ‘before’ and ‘after’ photos as proof of work done. Photos provide extra proof; they are date stamped (in the metadata) and will show well enough when and where work was done on the home.
General household documents that should be kept in a homeowner’s file include the title deed to the property, mortgage bond documents, insurance policies, drawings, copies of any building works invoices and guarantees from suppliers, and photos.
“SARS is not out to get you when it comes to charging tax amounts, but correct amounts will be calculated, and as long as the owner has proof of what should be deducted, these will be taken into account,” says Van Blerck.