Capital Gains Tax explained

It is important to know how Capital gains tax will impact your profit when you decide to sell.

WHAT IS CAPITAL GAIN?

A capital gain occurs when an asset is sold for an amount exceeding its original cost.
Capital Gains Tax (CGT) applies to the profit or capital gain that you make on the sale of a property.

The profit (capital gain) is the Selling price less the base cost (Purchase price) and any costs incurred to improve the property, and the costs incurred when selling the property..

HOW IS THE CAPITAL GAIN CALCULATED?

Capital Gain = Selling Price – Purchase Price – Allowable Expenses

Calculate how much the value of the Property has increased since 1 October 2001, or since date of purchase if the Property was bought after 1 October 2001.

For example if your Property was valued at R2 000 000.00 on 1 October 2001 or if you bought the Property after 1 October 2001 for R2 000 000.00 and sell the Property in 2025 for R3 000 000.00, then your capital gain is R1 000 000.00.

The other deductions as mentioned above such as transfer costs when buying and agents commission when selling and the cost of any improvements made to the Property would also be deducted from the capital gain.
Costs of general maintenance and repairs do not count as deductions.

There are some exclusions such as 

- A 2million exclusion.
A primary residence registered in your own name, sold at a capital gain of up to R2 million provided the property does not exceed 2 Hectares in size.

- A second residence or investment property therefore does not qualify for the R2million exclusion however,
an individual taxpayer is allowed a R40, 000 exclusion on their annual tax return.

- R300,000 allowed for deceased estates only in the year that the death occurred.
If the property is transferred to a surviving spouse, no CGT is payable in the first year of death. The spouse will only pay CGT when they later sell the property.

Companies, CC’s and Trusts do Not receive the R2million exemption.

Once the capital gain has been calculated, and exclusions have been deducted, the capital gain is included in taxable income for that year.

Individuals are taxed 40% on their net capital gain. This means the effective tax rate is between 7-18 % depending on the individuals tax bracket.
Companies and trusts have an inclusion rate of 80%.


Please note that these are general guidelines and you should always seek advice from a qualified Tax consultant or attorney.