CAPITAL GAINS TAX

What You Need to Know.

Capital Gains Tax (CGT) was implemented in South Africa on 1 October

2001. It is a tax charged on the disposal of assets and is calculated as

the proceeds received on the disposal of assets less the base cost

(original cost plus improvements) of the asset. Not all assets are

necessarily subject to CGT.

 Some of the important exclusions are the following:

·         Primary residence (applicable to natural persons and special trusts

only). If the proceeds on the sale of a person’s primary residence is

less than R2m any capital gain is disregarded, but any capital loss

may be carried forward. If the proceeds exceed R2m the first R2m of

the capital gain or loss calculated is disregarded

·         Most personal belongings such as a motor vehicle (including a motor

vehicle for which you receive a car allowance), a caravan, artwork,

stamp collection, furniture and household appliances and other

assets used mainly (that is, more than 50%) for a non-trade

purposes.

·         Boats not exceeding ten metres in length and aircraft having an

empty mass of 450 kilograms or less which are personal-use assets.

·         Lump sum payments from pension, pension preservation, provident,

provident preservation and retirement annuity funds (approved

retirement funds)

·         Proceeds from an endowment policy or life insurance policy (but not if

it is a second-hand or a foreign policy).

·         Compensation for personal injury or illness.

·         Prizes/winnings from gambling, games or competitions which are

authorised by, and conducted under, the laws of South Africa, for

example, the National Lottery.

If the asset was purchased after 1 October 2001 then it is straight

forward to calculate the base cost of the asset - it is the original cost

plus the cost of improvements made subsequent to purchasing the

asset on condition these costs have been capitalised and not expensed

and claimed for income tax purposes and these improvements still

exist at the date of disposal. If the asset was purchased prior to 1

October 2001 then the base cost can be determined in one of three

different methods - the choice of which method to use to determine the

base cost at 1 October 2001 is up to the taxpayer while all qualifying

costs after this date should be added to this cost to get the total base

cost at the date of disposal.

Upon calculation of the net gain or loss for all the assets an annual exclusion

 is given by SARS to individuals which can be deducted from the net gain

(this exclusion is only available to individuals and not to companies).

The net capital gain or loss (after deducting the annual exclusion)

 will then be included in the normal income tax calculation at the inclusion

 rate i.e. 66.6% for companies and 33.3% for individuals.

It should be noted that it is a requirement by law that companies and close

corporations maintain a fixed asset register. Furthermore, a lot of information

 needed in calculating CGT  is obtained from the fixed asset register.

We therefore urge all companies to maintain an up-to-date fixed asset register.

Please contact us to find out more about CGT and also how to maintain a fixed

asset register in order to remain compliant with the law!

Information curtesy of The Tax Shop