If you own an asset – including property and shares – you may be wondering whether you’ll be liable to pay Capital Gains Tax when you sell it.
Capital Gains Tax, or CGT, has been a part of the South African tax landscape since it was introduced in 2001. To help you understand what this tax is, who and what it applies to, and under what conditions you’ll be expected to pay it, we’ve put together a quick guide to CGT. Let’s get started.
Will I end up paying CGT?
This is one of the most common questions clients ask the Northwood team, and understandably so – the list of assets that are liable for CGT (and the complicated formulas that SARS uses to calculate it) are enough to confuse anyone.
Generally speaking, you may be liable for CGT if:
- You own a primary or secondary property
- You own shares
- You own any other asset that you may be thinking of selling in the near future
How much will I need to pay?
This is the part that is most confusing for many tax payers, but SARS actually calculates CGT based on a simple concept: when you dispose of an asset, you’re taxed on the gain you make by selling it.
Let’s unpack this idea some more to fully understand how CGT is calculated:
- Disposing of an asset could mean selling it, giving it away, or losing it to damage, theft, or a freak event.
- The gain is equal to SALE PRICE – PURCHASE PRICE (with a few exceptions).
For example, let’s assume that you bought an asset for R10 000 and sold it for R20 000 – you would only pay CGT on the gain: in other words, on the profit you made by selling it.
CGT is levied at 33.3% of the gain – in the same example, you would be liable to pay SARS a basic CGT of R10 000 x 33.3%, or R3330.00.
Exceptions and deductions
Like many taxes, there are deductions that can be made to CGT.
- In general, you can deduct the cost of selling the asset and the cost of improving the asset from the CGT you are liable to pay.
- There are also annual CGT exclusions, so that if you dispose of any assets in a given year and profit less than a certain amount (R30 000 is the current threshold), you won’t be liable for CGT.
- CGT on the sale of your primary home only applies if you profit more than R2 million on the sale.
For more information on CGT, speak to your financial advisor – especially if you’re planning on selling an asset anytime soon.