Basics of Capital Gains Tax
- Capital Gains Tax applies to all assets disposed of on or after 1 October 2001.
- Your capital gains tax will equal your capital gains x the 40% inclusion rate x your marginal tax rate (which increases according to your income).
- Capital gains on a primary residence (the residence in which the home seller lives) are excluded up to a rate of R2 000 000.
What is capital gains tax?
A tax on an asset being disposed of on or after 1 October 2001 for proceeds that exceed its base cost.
It is not a separate tax but forms part of income tax. No separate registration is required.
"Disposal" refers to:
- Sale of an asset.
- Donation of an asset.
- Expropriation of an asset.
- Vesting of an interest in an asset of a trust in a beneficiary.
- Death of a person.
How is capital gains tax calculated in South Africa?
Three factors are used to calculate the tax:
- The capital gain (calculate this by subtracting the base cost of the property, which includes incurred costs such as renovations, transfer costs and attorney fees, from the amount you sold it for.
- The inclusion rate (only 40% of the capital gain will be taxed if you're an individual, and 80% if it's a company or trust selling the property).
- The tax rate. The more you earn, the higher your marginal tax rate. As of February 2022, the marginal tax rate can range from 18% to 45% depending on your income.
So your capital gains tax = capital gain x 40% inclusion rate x marginal tax rate.
Some things are excluded from capital gains tax
For example:
- Capital gains on a primary residence (the residence in which the home seller lives) are excluded up to a rate of R2 000 000.
- If you and your spouse own a joint bond, the exclusion of R2 000 000 is split between the two of you, so you each qualify for an exclusion of R1 000 000.
- Capital gains tax on a second property in South Africa qualifies for an exclusion rate of R40 000.
Other exclusions include:
- Retirement benefits.
- Personal use assets.
- Payments in respect of original long-term insurance policies.
- Small business exclusion of capital gains for individuals (at least 55 years of age) of R1.8 million when a small business with a market value not exceeding R10 million is disposed of.
- Instead of the annual exclusion, the exclusion granted to individuals is R300 000 for the year of death.
How to make the most off your investment
If you're looking to invest in a property, or use profits from selling one to purchase another, you can strengthen your investment by acquiring a home loan with low interest rates.
At ooba Home Loans, South Africa's largest home loan comparison service, They can help you achieve this by submitting your home loan application to multiple banks, allowing you to compare deals offered by the banks and choose the best one. you can view the article on their website here https://www.ooba.co.za/resources/capital-gains-tax-south-africa/
