Understanding Capital Gains Tax

It is important for property buyers and sellers to be aware of the implications of capital gains tax (CGT) and how it could affect their future property transactions.  CGT is tax payable by the seller of an asset or fixed property on the profit made from the transaction, and applies to all South African resident taxpayers, companies, close corporations and trusts.

It includes any capital gains made from the sale of assets both here and overseas.  Resident taxpayers who are not South African citizens and who sell immovable property in SA are also liable for CGT.  However, Adrian Goslett, CEO of RE/MAX of Southern Africa, said there were certain exclusions applicable to CGT.  'For example, if an individual sells their primary residence they will need to make more than R2 million profit on the sale before CGT is applicable.'  A primary residence is defined as a property that is owned by a natural person.  It must be the main residence of the individual and must predominantly be used for domestic purposes.  Deductions would be made from the exempted gains to account for periods when the property was not used as a primary residence or was used as a business property. 

According to Goslett, where a primary residence is registered jointly in the names of a husband and wife, they would each benefit from a respective R2-million abatement on their share of the capital gain as both are considered taxpayers. However, both parties would have to reside in the property and a husband and a wife could not each have a primary residence.  No exemptions apply to capital gains from the sale of a second house or holiday home. 

'To calculate the capital gain of a transaction, sellers need to deduct the price of the property sold from the base cost of the property.  'The base cost is calculated by adding the original price paid for the property to the total cost of buying and selling the property, including the estate agent's commission, attorney fees and the cost of any inspections by electricians or plumbers.  'The cost of any renovations that qualify as improvements to the property can also be included; however, costs of routine maintenance may not,' says Goslett.

He said the SA Revenue Service wold then calculate CGT based on the net profit realised.  'The capital gain amount will then be added to the individual's income and taxed according to the tax brackets.  'The CGT becomes payable when the individual's income tax return is submitted at the end of the financial year during which the property was sold.'