The first thing to note is that CGT is not a separate tax that you need to register for; it is merely an additional item that would be included in your annual tax return, when relevant. So, the question is, when is CGT relevant?
CGT is charged by SARS on gains made upon the disposal of immovable property (most commonly a home, building or piece of land). This means that, if for example, a property were acquired in 2005 for R1m (the base cost) and then sold in 2015 for R2.5m (the proceeds), the total capital gain is R1.5m.
However, in most cases, additional costs are incurred for maintenance or improvements to a property. Therefore, in the above example, if the owner of the property added a swimming pool to the value of R20 000 and converted the garage into a cottage which cost R80 000, these values would be deducted from the overall gain or profit made on the sale of the property.
In addition, a natural person is eligible for an “annual exclusion” to the value of R40 000.
To illustrate the above scenario, the following example can be used:
R9 000 000 (proceeds of sale)
– R6 000 000 (base cost)
= R3 000 000 (capital gain)
– R100 000 (improvement)
= R2 900 000
– R40 000 (annual exclusion – natural persons only)
– R2 000 000 (primary residence exclusion – natural persons only)
= R860 000 (aggregate capital gain)
It is worth pointing out here though, that because CGT was instituted in South Africa on 1 October 2001, this date is considered the “valuation date” and only gain made on a property from 1 October 2001 is liable for CGT. This means that while any individual selling a property is liable for CGT, the value on which CGT will be calculated will be based on the value of the property as at 1 October 2001 and the gain or profit made from this date up to the date of sale.
It can be seen from the above example that there are also certain exclusions to CGT such as where the property being sold is the primary residence of an individual. In such a situation, any capital gain up to a value of R2m is exempt from CGT. In other words, if a primary residence is sold for R2m or less, the full capital gain is disregarded. However, if this property belongs to a legal entity, such as a company, the exclusion will not apply.
While this is a broad overview of what to expect when it comes to CGT, it is always advisable to seek professional assistance to ensure all regulations are complied with and calculations are done accurately.
Written by Wessel de Kock