Capital gains tax (CGT) was introduced in South Africa with effect, from 1 October 2001 and applies to the disposal of an asset on or after that date.

Capital gains and capital losses made on the disposal of assets are subject to CGT unless excluded by specific provisions. Capital gains tax (CGT) is not a separate tax but forms part of income tax. The relevant legislation is contained in the Eighth Schedule to the Income Tax Act 58 of 1962. Capital gains are taxed at a lower effective tax rate than ordinary income.

Who is it for?

CGT applies to individuals, trusts and companies. Since CGT forms part of the income tax system, you must simply declare your capital gains and losses in your annual income tax return.

A resident, as defined in the Income Tax Act 58 of 1962, is liable for CGT on assets located both in and outside South Africa.

A non-resident is liable to CGT only on immovable property in South Africa or assets of a “permanent establishment” (branch) in South Africa. Certain indirect interests in immovable property such as shares in a property company are deemed to be immovable property.

Should you sell your primary residence (registered in your own personal name) and the capital gain exceeds R2 Million, it may be beneficial to contact your tax consultant to ensure that you will be left with the highest possible gain after having paid the South African Revenue Services

How to calculate:
The Capital gain = Selling Price – Base Cost

Where the base cost includes ORIGINAL COST =TRANSFER DUTY + TRANSFER FEES + IMPROVEMENTS + SELLING COST

Where selling cost INCLUDES = ESTATE AGENTS COMMISSION + BOND CANCELLATION FEES + CERTIFICATES OF COMPLIANCE

Improvement cost INCLUDES = ALL ADDITIONS OVER THE YEARS SUCH AS ALTERATIONS, IMPROVEMENTS, ALARM SYSTEMS, NEW PLANTS, PAVING ETC

In addition, if you decide to put your property in the market and aim for a higher selling price by doing painting and repairs before selling, SARS allow for these costs to be deducted as improvements.

What is a primary residence?

• A residence must meet certain basic requirements before it can qualify as a primary residence (Paragraph 44 of the Eighth Schedule).
• It must be a structure, including a boat, caravan or mobile home, which is used as a place of residence by an individual.
• An individual or special trust must own an interest in the residence.
• The individual with an interest in the residence, beneficiary of the special trust, or spouse of that person or beneficiary must ordinarily reside in the home and use it mainly for domestic purposes as his or her ordinary residence.

The primary residence exclusion also applies to the land on which the primary residence is situated, including unconsolidated adjacent land if the following conditions are met:

• The exclusion only applies to a maximum of two hectares.
• The land must be used mainly for domestic or private purposes together with the residence.
• The residence must be disposed of at the same time and to the same person as the land on which it is situated.

Most primary residences will not be subject to CGT because:

• The first R2 million of any capital gain or loss on the sale is disregarded for CGT purposes. This exclusion means that you need to make a capital gain of more than R2 million in order to be subject to CGT

	INCLUSION RATE			MAXIMUM EFFECTIVE RATE
	2013-2015	2016	2017	2013-2015	2016	2017
NATURAL PERSON	33.3%	33.3%	40%	13.3%	13.7%	16.4%
SPECIAL TRUST	33.3%	33.3%	40%	13.3%	13.7%	16.4%
COMPANY	66.6%	66.6%	80%	18.7&	18.7%	22.4%
TRUST	66.6%	66.6%	80%	26.6%	27.3%	32.8%

Exclusions and Rebates

• Annual exclusion
  • Natural persons and special trusts R40 000 (2016 : R30 000)
  • Natural persons in the year of death R300 000 (2012 : R200 000)