CAPITAL GAINS TAX Ė THE INNS AND OUTS

GENERAL

Capital Gains Tax (CGT) was introduced on the 1st October 2001. Income tax legislation regulates who is subject to CGT and which assets of a person are subject to CGT.

ASSET DEFINITION

  • property of whatever nature, whether movable or immovable, corporeal or incorporeal, excluding any currency, but including any coin made mainly from gold or platinum, and
  • a right of interest of whatever nature to or in the above property.

RESIDENT AND NON-RESIDENT

  • A resident is subject to CGT on the disposal of any asset whether in the Republic or outside:
  • A non-resident is subject to CGT only on the disposal of any immovable property or any interest or right of whatever nature in immovable property situated in the Republic, and any asset of his permanent establishment through which a trade is carried on in the Republic during the year of assessment.

The term 'an interest in immovable property situated in the Republic' which is held by a non-resident, includes a direct or indirect interest of at least 20% held by a person (alone or together with a connected person in relation to the person) in the equity share capital of a company or any other entity , where 80% or more of the market value of the net asset value of the company or other entity at the time of disposal of shares in the company or interests in the other entity is attributable to immovable property situated in the Republic.

CAPITAL GAIN

A capital gain must be determined for each asset disposed of during the current year of assessment by deducting the base cost of the asset, from its proceeds, where the proceeds exceed the base cost.

ANNUAL EXCLUSION

The annual exclusion of a natural person and a special trust in respect of a year of assessment is R15 000.

Where a person dies during the year of assessment, the person's annual exclusion for the year is R120 000.

TAXABLE CAPITAL GAIN

When a person has determined a net capital gain for the current year of assessment, this amount is multiplied by the inclusion rate to determine the personís taxable capital gain, which is to be included in his taxable income for the year of assessment.

Type of
Taxpayer
Inclusion Rate Statutory Rate Effective Rate
Individuals 25% 0-40% 0-10%
Trusts 50% 40% 20%
Companies 50% 29% 14.5%
Small business corporations 50% 0-29% 0-14.5%

BASE COST OF ASSET

Amounts included in base cost are:

  1. Cost of acquisition or creation
  2. Cost of obtaining a valuation
  3. Direct costs of acquisition or disposal
  4. Cost of establishing, maintaining or defending a legal title or right in an asset
  5. Cost of improvement or enhancements to value of asset
  6. Option acquired before, asset acquired after valuation date
  7. Certain holding costs

For assets acquired pre 1 October 2001, a person may have adopted the market value as the valuation date value.

PRIMARY RESIDENCE EXCLUSION

A 'primary residence' is defined as a residence

  • in which a natural person or a special trust holds an interest, and
  • which he or a beneficiary of the trust or his spouse or the spouse of the beneficiary ordinarily resides or resided in as his main residence, and who uses or used it mainly for domestic purposes.

General Principle

In determining the aggregate capital gain or loss, disregard so much of the capital gain or loss in respect of his or its disposal of the primary residence as does not exceed R1,5 million.

Because this definition includes only a natural person or a special trust, a company, close corporation or trust {other than a special trust) owning a residence used as a primary residence by a shareholder, member or beneficiary , will not qualify for the primary residence exclusion.

Non-resident

A person who is a non-resident cannot have a primary residence in the Republic, as the person does not, ordinarily reside' -a requirement of the definition of a 'primary residence' -in the Republic.

There are two basic principles, namely,

  • a limit of R1,5 million , and
  • that only one residence may be a primary residence

Size of Residential Property

A primary residence and the land on which it is situated is disposed of by a person is defined as the total of all land may not exceed two hectares to qualify for the exclusion.

When the size of a property qualifying for exclusion as a primary residence exceeds two hectares a reasonable apportionment is required as any gain or loss attributable to the property in excess of two hectares is subject to CGT.

Non-Residential Use

The purpose of this paragraph is to reduce the capital gain or capital loss disregarded in terms of the primary residence exclusion where part of the residence was used for the purposes of carrying on a trade in relation to that part.

For instance an office at home, and costs pertaining to that part was claimed for normal tax purposes.

 

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