All records must be retained for a period of 4 years from the date of filing of the tax return for the year in which the capital gain or loss is reported. If no declaration is submitted, the records must be kept for 5 years from the date of sale of the property. If an objection or appeal is lodged against an evaluation of the CGT, all records are kept for the aforementioned periods and thereafter until the evaluation is completed. If more than one person has an interest in a principal residence (for example, spouses married to each other on the basis of community of property), the exclusion is proportional to each party`s interest in the dwelling. It is important to keep accurate records of the above costs. If these records are not kept, no deduction of the proceeds is permitted to determine the capital gain. It is therefore advisable to find supporting documents and keep a record of the costs and date of acquisition of the property, as well as the follow-up costs incurred. This week I focus on the Capital Gains Tax (CGT), which was introduced in South Africa more than 20 years ago and came into effect on October 1, 2001. It operates in many other countries, including the United Kingdom, the United States and Canada. A capital gain is calculated by subtracting the basic costs from the proceeds of the sale of the property.
The sale includes a sale, gift, exchange, transfer of ownership to a beneficiary of a trust or emigration. You have decided to sell a second property that does not benefit from a principal residence exclusion; Thus, if your capital gain is greater than the exclusion of 40,000 rand, the CGT is now applicable. For the purposes of this calculation, we assume that the second property was rented and that your taxable income for the year was R500,000. The capital gains ratio of 40% per person must also be applied. The capital gains tax is not a separate form of income tax, but is part of the annual income tax assessment procedure. The capital gain realised on the sale of a residential property is included in the taxable income of the company concerned in the tax year in which the property is sold. However, the entire capital gain is not included in computing taxable income. For individuals, only 40% of the net capital gain on all assets sold in the respective tax year is included in the income tax calculation and taxed on the basis of the variable income tax scale applicable to individuals. For corporations, closed-end corporations and trusts, 80% of the net capital gain is included and taxed at the corresponding fixed corporate tax rates. The base cost is the amount against which the product is obtained. A 2001 presentation by the Tax Policy Branch of the National Treasury stated: “Capital gains are not indexed to inflation. The combined benefits of the `low integration rate` and the deferral of accumulated capital gains to realisation should more than offset the impact of inflation in a moderate inflation environment.
However, if you sell your investment property and keep your principal residence, and your profit is higher than the annual exclusion, which is R40,000 for 2019 (and remains for 2020), it will attract CGT. When the property is sold, the seller is required to pay capital gains tax (CGT) on all profits made in respect of the property after 1 October 2001, the date of the first introduction of tax in South Africa. If you are considering selling your home, you should be aware of the tax implications. Capital gains tax applies, for example, to the sale of property sold on or after October 1, 2001, including real property. Here`s a look at how and when this applies. The maximum effective capital gains tax rate is 18%. 40% of realized net capital gains are taxed at standard income tax rates. A person is entitled to an annual exclusion of ZAR 40,000 to determine the net capital gain for one year (in the year of the taxpayer`s death, this annual exclusion is increased to ZAR 300,000).
If the property was purchased before October 1, 2001, the following methods may be used to value the property at that time: This page provides guidance on the impact of capital gains tax on the sale of a residential property. The calculation of the CGT can sometimes be quite complex and we would therefore like to emphasize that we only give a guide to the basics of the CGT. We recommend that you seek advice from your accountant or tax planner on specific TMC issues. This tax, which is essentially part of your income tax, applies to all types of real estate, including real estate (a house, apartment or land) and a company`s equity. It does not apply to interest-bearing investments such as bank deposits and money market funds, nor to investments in pension funds. Keep in mind that capital gains tax is not a separate tax, but it is part of your income tax and is due when you receive your income tax assessment. Inflation is the only major price that the CGT does not take into account. If you buy a property for R1 million and sell it 10 years later for R3 million, much of your profit is pure inflation. Is it not unfair to be taxed for that? As the reality of these tough economic times sets in and personal budgets are scrutinized, you may have decided to sell your property, whether it`s the home you live in or a second home. While you may think that these types of assets have real value despite the dominant “buyer market,” a sale of this type has a relatively severe tax implication: capital gains tax (CGT). If necessary, proof of capital acquisition of real estate assets must also be provided to avoid income tax (i.e. short-term expenses spent on the asset over certain periods).
Since many years can pass between buying and selling, it is imperative that these documents are kept safe. Simply put, the CGT is payable by individuals, trusts and companies to the South African Revenue Authority (SARS) if you sell a property that has appreciated since purchase, and applies to those purchased from October 2001. However, there is an exemption that applies to principal residences; This is the property in which the owner lives permanently. Yes. Non-residents are liable for payment from the CGT for the sale of property they own in South Africa or for the sale of a stake of at least 20% of the share capital of a company if 80% or more of the net asset value of the company is attributable to real estate. Let`s say you and your partner share a primary residence. If this principal residence is sold, each of you is eligible for an exclusion of R1 million. However, this exclusion does not apply to any portion of capital gains from parts of the home used for commercial purposes (this may be office furniture or even rentals).
If a South African resident has a principal residence, up to ZAR 2 million of the capital gain is exempt from capital gains tax (CGT). If the property has already been rented or partially used for commercial purposes, a division of the exclusion applies. It is therefore essential to keep proper records of any capital costs incurred when using your principal residence, as you will need to provide proof of all of these costs in order to be able to deduct the cost of capital gains tax. If you properly document all eligible costs, you can end up saving a significant amount of capital gains tax! This principle is all the more important for rental real estate as there is no exemption for principal residence. Also note that the principal residence exclusion does not apply to corporations, closed-end corporations and trusts. The decision to register a principal residence in the name of one of these types of companies could therefore result in a higher liability of the CGT. Assuming the marginal annual income tax rate is 41%, which is applied to R424,000, the capital gains tax is R173,840. Any sale of South African real estate assets by a non-resident is subject to the WHT. If the seller is a non-resident of South Africa, the WHT rate is 7.5%. This is not a final tax, but an advance on the actual tax owed by the seller for the year. If the actual tax payable is expected to be less than the WHT, SARS may result in a reduction in WHT. Capital gains tax on a second property in South Africa would still be eligible for an exclusion rate of R40,000.
If the owner has rented the property but has also lived there for a certain period of time, capital gains tax applies to the period for which the property was rented, while the period during which he had a principal residence is subject to the exclusion rate of R2,000,000 (source). If the property being sold is used by an individual as a principal residence and the sale price is less than R2 million, the property is exempt from capital gains tax. If the sale price of the principal residence is more than R2 million, the first R2 million of the capital gain is exempt from capital gains tax. This sounds like a significant amount, but most people tend to occupy their primary residence for a number of years, and so homeowners need to realise that a R1 million property only needs to grow by 11% per year for 10 years and a R1.5 million property only needs to grow by 8.5% for 10 years. result in a capital gain greater than the exclusion amount.