-Capital Gains Tax…

Make sure you know how Capital Gains Tax will affect your bottom line if you decide to sell.

CGT (Capital Gains Tax) applies to the profit (capital gain) that you make on the sale of a property.

The profit (capital gain) is the Selling price, less the base cost, less other allowable capital expenses.

HOW IS THE CAPITAL GAIN CALCULATED?:

To calculate the capital gain the property owner must work out 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 R1 000 000.00 on 1 October 2001 OR if you bought the Property after 1 October 2001 for R1 000 000.00 and sell the Property in 2024 for R4000 000.00, then your capital gain is R3 000 000.00.

There are certain further deductions that are allowed, such as the cost of buying and selling the Property (such as transfer costs when buying and agents commission when selling) and the cost of any capital improvements made to the Property. Costs of general maintenance and repairs do not count as deductions.

The profit that you make, is the capital gain and is dealt with as follows:

EXCLUSIONS:

– There is an exclusion of R2million on the capital gain made on the disposal of a primary residence, provided the property does not exceed 2 Hectares in size, and provided it is registered in your own name and is really used as your primary residence.

– Your 2nd property or investment property therefore does not qualify for the R2million exclusion.

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

– There is also an annual exclusion allowed of R40,000 for individual taxpayers, and R300,000 for deceased estates (in the year that the death occurred).

Once the capital gain has been calculated, and any allowed exclusions have been deducted, the capital gain is included in taxable income for that year as follows:

• Seller is a Natural Person:
40% of the gain made on the sale of immovable property (less any exclusions allowed) must be included in the annual income of the taxpayer. The latter will then be taxed at the rate that applies to the taxpayer’s particular level of annual income.

• Seller is a Company
80% of the gain made on the sale of immovable property by a company must be included in the annual income of that company and will be taxed at the Income tax rate applicable to companies.

• Seller is a Trust
80% of the gain made on the sale of immovable property by a trust must be included in the annual income of that trust and will be taxed at the Income tax rate applicable to trusts.

These are general guidelines – A tax practitioner should be consulted if necessary.

Information herein as at June 2024. Please note that we are not tax consultants or attorneys and that you should always consult with an expert in tax before making your final decision.

Please contact us if you have any questions or need guidance on selling or buying property. We specialize in making the process as smooth as possible.

We look forward to hearing from you…